ARBOR REALTY TRUST, INC.333 EARLE OVINGTON BLVD.

SUITE 900 | UNIONDALE, NY 11553P: 516.506.4200 | F: 516.506.4345

ARBOR.COM

2018ANNUAL REPORT

CORPORATE INFORMATIONBOARD OF DIRECTORS

Ivan KaufmanChairman of the Board of DirectorsArbor Realty Trust, Inc.

Joseph MartelloChief Operating OfficerArbor Management, LLC

Dr. Archie R. Dykes (1)Former Chairman and Lead DirectorPepsiAmericas, Inc.

Edward Farrell (1)Senior Vice President Chief Accounting OfficerCorporate Controller andInterim Chief Financial OfficerAllianceBernstein, L.P.

William C. Green (1) (2)

Cofounder and Managing Director Cazenovia Creek Investment Management, LLCChief Financial Officer Ginkgo Residential

Dr. William Helmreich Founder and PresidentByron Research and Consulting

Melvin F. Lazar (3)

Managing MemberMelvin F. Lazar, LLC

Elliot SchwartzCofounder, Chief Executive Officer and General CounselDebt Recovery Solutions, LLC

George TsunisFounder, Chairman and CEOChartwell Hotels

(1) Member of Audit Committee(2) Serves as Lead Director(3) Serves as Chairman of the Audit Committee

CORPORATE OFFICERS

Ivan KaufmanChief Executive Officer and President

Paul ElenioExecutive Vice PresidentChief Financial Officer

John J. Bishar, Jr., Esq. Executive Vice PresidentGeneral Counsel andCorporate Secretary

John CaulfieldExecutive Vice PresidentChief Operating Officer Agency Lending

Fred WeberExecutive Vice PresidentManaging DirectorStructured Finance andPrincipal Transactions

Gene KilgoreExecutive Vice President Structured Securitization

John NataloneExecutive Vice PresidentTreasury and Servicing

Daniel P. KennyExecutive Vice PresidentChief Asset ManagerServicing and Asset Management

Bonnie HabyanExecutive Vice PresidentChief Marketing Officer

Thomas MurphyExecutive Vice PresidentChief Information Officer

Frank LutzExecutive Vice PresidentChief Production Officer

Howard LeinerExecutive Vice PresidentChief Technology Officer

Steven KatzExecutive Vice PresidentChief Investment OfficerResidential Financing

Andrew GuziewiczManaging DirectorChief Credit OfficerStructured Finance

Thomas Ridings Senior Vice PresidentChief Accounting Officer

SHAREHOLDER INFORMATION

Corporate Office333 Earle Ovington BoulevardSuite 900Uniondale, NY 11553Tel.: 516.506.4200

Common Stock ListingNew York Stock ExchangeSymbol: ABR

Transfer AgentAmerican Stock Transfer &Trust Company6201 15th AvenueBrooklyn, NY 11219Tel.: 718.921.8200

Legal CounselSkadden, Arps, Slate, Meagher & Flom LLP4 Times SquareNew York, NY 10036Tel.: 212.735.3000

Independent RegisteredPublic Accounting FirmErnst & Young LLP5 Times SquareNew York, NY 10036Tel.: 212.773.3000

Investor Relations ContactPaul ElenioChief Financial OfficerArbor Realty Trust, Inc.Tel.: 516.506.4200

Arbor Realty Trust, Inc. has filed Section 302 certifications as anexhibit to its Form 10-K, and theChief Executive Officer has presented the Company’s annual certification to the NYSE.

A210

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K! ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934For the fiscal year ended December 31, 2018

or" TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934Commission file number: 001-32136

Arbor Realty Trust, Inc.(Exact name of registrant as specified in its charter)

Maryland 20-0057959(State or other jurisdiction (I.R.S. Employer

of incorporation) Identification No.)333 Earle Ovington Boulevard, Suite 900,

Uniondale, NY 11553(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (516) 506-4200Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered

Common Stock, par value $0.01 per share New York Stock ExchangePreferred Stock, 8.25% Series A Cumulative

Redeemable, par value $0.01 per share New York Stock ExchangePreferred Stock, 7.75% Series B Cumulative

Redeemable, par value $0.01 per share New York Stock ExchangePreferred Stock, 8.50% Series C Cumulative

Redeemable, par value $0.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes " No !

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. Yes " No !

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ! No "

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to besubmitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit such files). Yes ! No "

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of thischapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxyor information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. "

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, asmaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘acceleratedfiler,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.Large accelerated filer " Accelerated filer ! Non-accelerated filer " Smaller reporting company "

Emerging growth company "If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition

period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of theExchange Act. "

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes " No !The aggregate market value of the registrant’s common stock, all of which is voting, held by non-affiliates of the

registrant as of June 30, 2018 (computed based on the closing price on such date as reported on the NYSE) was$632.7 million. As of February 8, 2019, the registrant had 85,358,282 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the registrant’s 2019 Annual Meeting of Stockholders (the ‘‘2019 ProxyStatement’’), to be filed within 120 days after the end of the registrant’s fiscal year ended December 31, 2018 areincorporated by reference into Part III of this Annual Report on Form 10-K.

INDEX

PAGE

PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . 59Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . 152Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . 152Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

PART IV

Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Forward-Looking Statements

This report contains certain ‘‘forward-looking statements’’ within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward-looking statements relate to, among otherthings, the operating performance of our investments and financing needs. We use words such as‘‘anticipate,’’ ‘‘expect,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘should,’’ ‘‘could,’’ ‘‘will,’’ ‘‘may’’ and similar expressions toidentify forward-looking statements, although not all forward-looking statements include these words.Forward-looking statements are based on certain assumptions, discuss future expectations, describefuture plans and strategies, contain projections of results of operations or of financial condition or stateother forward-looking information. Our ability to predict results or the actual effect of future plans orstrategies is inherently uncertain. These forward-looking statements involve risks, uncertainties andother factors that may cause our actual results in future periods to differ materially from forecastedresults. Factors that could have a material adverse effect on our operations and future prospectsinclude, but are not limited to, changes in economic conditions generally and the real estate marketspecifically; adverse changes in our status with government-sponsored enterprises affecting our ability tooriginate loans through such programs; changes in interest rates; the quality and size of the investmentpipeline and the rate at which we can invest our cash; impairments in the value of the collateralunderlying our loans and investments; changes in federal and state laws and regulations, includingchanges in tax laws; the availability and cost of capital for future investments; and competition. Readersare cautioned not to place undue reliance on any of these forward-looking statements, which reflectmanagement’s views as of the date of this report. The factors noted above could cause our actualresults to differ significantly from those contained in any forward-looking statement. For a discussion ofour critical accounting policies, see ‘‘Management’s Discussion and Analysis of Financial Condition andResults of Operations of Arbor Realty Trust, Inc. and Subsidiaries—Significant Accounting Estimatesand Critical Accounting Policies’’ under Item 7 of this report.

Although we believe that the expectations reflected in the forward-looking statements arereasonable, we cannot guarantee future results, levels of activity, performance or achievements. We areunder no duty to update any of the forward-looking statements after the date of this report to conformthese statements to actual results.

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PART I

Item 1. Business

In this Annual Report on Form 10-K we refer to Arbor Realty Trust, Inc. and subsidiaries as‘‘Arbor,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ or the ‘‘Company’’ unless we specifically state otherwise or the contextindicates otherwise.

Overview

Arbor is a Maryland corporation formed in 2003. We operate through two business segments: ourStructured Loan Origination and Investment Business, or ‘‘Structured Business,’’ and our Agency LoanOrigination and Servicing Business, or ‘‘Agency Business.’’ Through our Structured Business, we investin a diversified portfolio of structured finance assets in the multifamily and commercial real estatemarkets, primarily consisting of bridge and mezzanine loans, including junior participating interests infirst mortgages, preferred and direct equity. We may also directly acquire real property and invest inreal estate-related notes and certain mortgage-related securities. Through our Agency Business, weoriginate, sell and service a range of multifamily finance products through the Federal NationalMortgage Association (‘‘Fannie Mae’’) and the Federal Home Loan Mortgage Corporation (‘‘FreddieMac,’’ and together with Fannie Mae, the government-sponsored enterprises, or ‘‘GSEs’’), theGovernment National Mortgage Association (‘‘Ginnie Mae’’), Federal Housing Authority (‘‘FHA’’) andthe U.S. Department of Housing and Urban Development (together with Ginnie Mae and FHA,‘‘HUD’’) and conduit/commercial mortgage-backed securities (‘‘CMBS’’) programs. We retain theservicing rights and asset management responsibilities on substantially all loans we originate and sellunder the GSE and HUD programs. We are an approved Fannie Mae Delegated Underwriting andServicing (‘‘DUS’’) lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing,senior housing and small balance loan (‘‘SBL’’) lender, seller/servicer, nationally and a HUD MAP andLEAN senior housing/healthcare lender nationally.

Substantially all of our operations are conducted through our operating partnership, Arbor RealtyLimited Partnership (‘‘ARLP’’), for which we serve as the general partner, and ARLP’s subsidiaries. Weare organized to qualify as a real estate investment trust (‘‘REIT’’) for U.S. federal income taxpurposes. A REIT is generally not subject to federal income tax on that portion of its REIT-taxableincome that is distributed to its stockholders, provided that at least 90% of taxable income isdistributed and provided that certain other requirements are met. Certain of our assets that producenon-qualifying REIT income, primarily within the Agency Business, are operated through taxable REITsubsidiaries (‘‘TRS’’), which is part of our TRS consolidated group (the ‘‘TRS Consolidated Group’’)and is subject to U.S. federal, state and local income taxes. In general, our TRS entities may holdassets that the REIT cannot hold directly and may engage in real estate or non-real estate-relatedbusiness.

Business Objectives and Strategy

Our principle business objectives are to maximize the difference between the yield on ourinvestments and the cost of financing these investments, to grow the stable earnings associated with theservicing portfolio of our agency platform, to generate cash available for distribution and facilitatecapital appreciation. We believe we can achieve these objectives and maximize the total return to ourstockholders through the following investment strategies.

Investment Strategy

The financing of multifamily and commercial real estate offers opportunities that demandcustomized financing solutions. We believe that providing both structured products and agency loans

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through direct originations and in-house underwriting capabilities throughout our national network ofsales offices and lending solutions through various GSE and HUD programs provides us with acompetitive advantage, since this allows us to meet the multiple needs of our borrowers through a fullyintegrated, comprehensive product offering. We employ the following investment strategies:

Provide Customized Financing. We provide customized financing to meet the needs of ourborrowers. We target borrowers whose options may be limited by conventional bank financing, havedemonstrated a history of enhancing the value of the properties they operate and who may benefitfrom the customized financing solutions we offer.

Execute Transactions Rapidly. We act quickly and decisively on proposals, provide commitmentsand close transactions within a few weeks and sometimes days, if required. We believe that rapidexecution attracts opportunities from both borrowers and other lenders that would not otherwise beavailable. We believe our ability to structure flexible terms and close loans in a timely manner gives usa competitive advantage.

Manage Credit Quality. A critical component of our strategy is our ability to manage the realestate risk associated with our investment portfolio. We actively manage the credit quality of ourportfolio by using the expertise of our asset management group, which has a proven track record ofstructuring and repositioning investments to improve credit quality and yield.

Use Our Relationships with Existing Borrowers. We have relationships with a large borrower basenationwide and a strong reputation in the commercial real estate finance industry. Based on theexperience of our originators, we can offer a wide range of customized financing solutions and canbenefit from the existing customer base and use existing business to create potential refinancingopportunities.

Long-Established Relationships with GSEs. Our Agency Business benefits from our long-establishedrelationships with Fannie Mae, Freddie Mac and HUD enabling us to offer a broad range of loanproducts and services which maximizes our ability to meet our borrowers’ needs.

Leverage the Experience of Executive Officers and Our Employees. Our executive officers andemployees have extensive experience originating and managing structured commercial real estateinvestments. Our senior management team has, on average, over 30 years of experience in the financialservices industry.

Our Primary Targeted Investments

We pursue short-term and long-term lending and investment opportunities and primarily targettransactions where we believe we have competitive advantages, particularly our lower cost structure andin-house underwriting capabilities.

Through our Structured Business, we focus primarily on the following investment types:

Bridge Financing. We offer bridge financing products to borrowers who are typically seekingshort-term capital to use in an acquisition of property. The borrower has usually identified anundervalued asset that has been under managed and/or is located in a recovering market. From theborrower’s perspective, shorter term bridge financing is advantageous because it allows for time toimprove the property value without encumbering it with restrictive, long-term debt that may not reflectoptimal leverage for a non-stabilized property.

Our bridge loans are predominantly secured by first mortgage liens on the property. Additionalyield enhancements may include origination fees, deferred interest, yield look-backs, and participatinginterests, which are equity interests in the borrower that share in a percentage of the underlying cash

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flows of the property. Borrowers typically use the proceeds of a conventional mortgage to repay abridge loan.

Preferred Equity Investments. We provide financing by making preferred equity investments inentities that directly or indirectly own real property. In cases where the terms of a first mortgageprohibit additional liens on the ownership entity, investments structured as preferred equity in theentity owning the property serve as viable financing substitutes. With preferred equity investments, wetypically become a member in the ownership entity. Similar to our bridge loans, the yield on theseinvestments may be enhanced by prepaid and deferred interest payments, yield look-backs andparticipating interests.

Mezzanine Financing. We offer mezzanine financing in the form of loans that are subordinate to aconventional first mortgage loan and senior to the borrower’s equity in a transaction. Mezzaninefinancing may take the form of loans secured by pledges of ownership interests in entities that directlyor indirectly control the real property or subordinated loans secured by second mortgage liens on theproperty. We may also require additional security such as personal guarantees, letters of credit and/oradditional collateral unrelated to the property. Similar to our bridge loans, the yield on theseinvestments may be enhanced by prepaid and deferred interest payments, yield look-backs andparticipating interests. We hold a majority of our mezzanine loans through subsidiaries of our operatingpartnership that are pass-through entities for tax purposes.

Junior Participation Financing. We offer junior participation financing in the form of a juniorparticipating interest in the senior debt. Junior participation financings have the same obligations,collateral and borrower as the senior debt. The junior participation interest is subordinated to thesenior debt by virtue of a contractual agreement between the senior debt lender and the juniorparticipating interest lender. Similar to our bridge loans, the yield on these investments may beenhanced by prepaid and deferred interest payments, yield look-backs and participating interests.

Structured Transactions. We also periodically invest in structured transactions, which are primarilycomprised of joint ventures formed to acquire, develop and/or sell real estate related assets. These jointventures are generally not majority owned or controlled by us and are primarily accounted for underthe equity method of accounting.

Through our Agency Business, we focus primarily on the following investment types:

GSE and HUD Agency Lending. We are one of 25 approved lenders that participate in FannieMae’s DUS program and one of 23 lenders approved as a Freddie Mac Multifamily Conventional Loanlender for multifamily, manufactured, student, affordable and certain seniors housing properties, one of11 participants in the Freddie Mac SBL program and an approved HUD MAP and LEAN lenderproviding construction permanent loans to developers and owners of multifamily housing, affordablehousing, seniors housing and healthcare facilities. Our Agency Business underwrites, originates, sellsand services multifamily mortgage loans across the U.S. through these programs and also originates andsells loans through the conduit markets. Our focus is primarily on small balance loans. We retain theservicing rights and asset management responsibilities on substantially all loans made under the GSEand HUD programs.

Other Investment Opportunities

Real Property. We have, and may in the future, obtain real estate by foreclosure, through partialor full settlement of mortgage debt related to our loans. We may identify such assets and initiate anasset-specific plan to maximize the value of the investment, which may include appointing a third partyproperty manager, renovating the property, leasing or increasing occupancy, or selling the asset. Assuch, these transactions may require the use of additional capital prior to completion of the specificplan.

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Freddie Mac SBL Program Securities. We have, and may in the future, invest in bond securitiesissued by Freddie Mac SBL securitizations from loans originated under the Freddie Mac SBL program.These securities are carried at cost and are usually purchased at a discount to their face value which isaccreted into interest income, if deemed to be collectable, over the expected remaining life of therelated security as a yield adjustment.

Structured Business Portfolio Overview

Product type and asset class information about our loan and investment portfolio as ofDecember 31, 2018 is as follows ($ in thousands):

Wtd. Avg.Remaining

Unpaid Wtd. Avg. Months toType Asset Class Number Principal Pay Rate(1) Maturity

Bridge Loans . . . . . . . . . . . . . . . . . . . . . . Multifamily 131 $2,194,147 6.97% 18.7Self Storage 13 301,830 7.16% 21.1Land 8 136,295 1.32% 7.5Healthcare 6 122,775 8.15% 26.0Office 5 122,167 7.14% 14.9Other 4 115,600 8.48% 18.1

167 2,992,814 6.84% 18.5Preferred Equity . . . . . . . . . . . . . . . . . . . . Multifamily 8 179,081 8.02% 78.8

Other 2 2,580 5.12% 22.210 181,661 7.97% 78.0

Mezzanine Loans . . . . . . . . . . . . . . . . . . . Multifamily 5 54,692 10.25% 14.3Hotel 1 19,975 15.50% 20.0Land 2 15,333 4.70% 6.8Other 5 18,867 11.06% 59.6

13 108,867 10.57% 22.1Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 $3,283,342 7.02% 22.0

(1) ‘‘Weighted Average Pay Rate’’ is a weighted average, based on each loans unpaid principalbalances (‘‘UPB’’), of our interest rate required to be paid monthly as stated in the individual loanagreements. Certain loans and investments that require an additional rate of interest ‘‘AccrualRate’’ to be paid at maturity are not included in the weighted average pay rate as shown in thetable.

Asset class and geographic information for our loan and investment portfolio as of December 31,2018 is as follows ($ in thousands):

Asset Class UPB Percentage Geographic Location UPB Percentage

Multifamily . . . . . . . . . . . $2,427,920 74% New York . . . . . . . . . . . . $ 746,333 23%Self Storage . . . . . . . . . . 301,830 9% Texas . . . . . . . . . . . . . . . 574,868 18%Land . . . . . . . . . . . . . . . 151,628 5% Georgia . . . . . . . . . . . . . 236,093 7%Office . . . . . . . . . . . . . . . 132,047 4% California . . . . . . . . . . . . 191,316 6%Healthcare . . . . . . . . . . . 122,775 4% Other(1) . . . . . . . . . . . . . 1,534,732 46%Other . . . . . . . . . . . . . . . 147,142 4%Total . . . . . . . . . . . . . . . $3,283,342 100% Total . . . . . . . . . . . . . . . $3,283,342 100%

(1) No other individual state represented 4% or more of the total.

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The overall yield on our loan and investment portfolio in 2018 was 6.97% on average assets of$3.26 billion. This yield was computed by dividing the interest income earned during 2018 by theaverage assets during 2018. Our cost of funds in 2018 was 5.20% on average borrowings of$2.65 billion. This cost of funds was computed by dividing the interest expense incurred during 2018 bythe average borrowings during 2018. As of December 31, 2018, our loan and investment portfolio wascomprised of 88% floating rate loans and 12% fixed rate loans.

We also own unconsolidated investments in equity affiliates totaling $21.6 million, which consistsprimarily of a joint venture formed to invest in a residential mortgage banking business.

Agency Business Lending and Servicing Overview

One of the Agency Business’s primary sources of revenue are the gains and fees recognized fromthe origination and sale of mortgage loans under GSE and HUD programs. Loans originated underGSE and HUD programs are generally sold within 60 days from the loan origination date. Our loanactivity in 2018 was comprised of originations totaling $5.12 billion and sales totaling $4.92 billion. Ourgains and fees as a percentage of our loan sales volume (‘‘sales margin,’’) was 142 basis points for 2018.

We also retain the mortgage servicing rights (‘‘MSRs’’) on substantially all of the loans weoriginate, and record as revenue the fair value of the expected net future cash flows associated with theservicing of these loans. Servicing revenue is generated from the fees we receive for servicing the loansand on escrow deposits held on behalf of borrowers, net of amortization on the MSR assets.

Product and geographic concentration information about our Agency Business servicing portfolioas of December 31, 2018 is as follows ($ in thousands):

Product Concentrations Geographic ConcentrationsWtd. Avg.

Wtd. Avg. Life ofServicing Servicing

Loan Percent Fee Rate PortfolioProduct Count UPB of Total (basis points) (years) State UPB

Fannie Mae . . . . . . 2,232 $13,562,667 73% 51.3 7.4 Texas . . . . . . . . . . . 20%Freddie Mac . . . . . . 1,415 4,394,287 24% 30.8 10.8 North Carolina . . . . 10%FHA . . . . . . . . . . . 91 644,687 3% 15.5 19.6 New York . . . . . . . . 8%Total . . . . . . . . . . . 3,738 $18,601,641 100% 45.2 8.6 California . . . . . . . . 8%

Georgia . . . . . . . . . 6%Florida . . . . . . . . . . 6%Other(1) . . . . . . . . . 42%Total . . . . . . . . . . . 100%

(1) No other individual state represented 4% or more of the total.

Management Agreement

In connection with the acquisition of the agency platform of Arbor Commercial Mortgage, LLC(‘‘ACM’’ or our ‘‘Former Manager’’) in the third quarter of 2016 (the ‘‘Acquisition’’), we had the optionto fully internalize our management team and terminate the management agreement we had withACM. Effective May 31, 2017, we exercised our option to fully internalize our management team andterminate the existing management agreement for $25.0 million. In addition, we also entered into ashared services agreement with ACM where we provide limited support services to ACM and itreimburses us for the costs of performing such services.

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Operations

The following describes our lending and investment process for both our Structured and AgencyBusinesses.

Origination. We have a network of sales offices in California, Georgia, Indiana, Massachusetts,New Jersey, New York, Oklahoma and Texas that staff approximately 23 loan originators who solicitproperty owners, developers and mortgage loan brokers. In some instances, the originators accept loanapplications which meet our underwriting criteria from a select group of mortgage loan brokers. Oncepotential borrowers have been identified, we determine which of our financing products best meet theborrower’s needs. Loan originators in every sales office are able to offer borrowers the full array offinance products for both the Structured and Agency businesses. After identifying a suitable product,we work with the borrower to prepare a loan application. Upon completion by the borrower, theapplication is forwarded to our underwriters for due diligence.

Underwriting and Risk Management. Our underwriters perform due diligence on all proposedtransactions prior to approval and commitment using several tools to manage and mitigate potentialloan losses and risk sharing exposure. The underwriters analyze each loan application in accordancewith the guidelines below to determine the loan’s conformity with the guidelines. Key factorsconsidered in credit decisions include, but are not limited to, debt service coverage, loan to value ratiosand property financial and operating performance. In general, our underwriting guidelines requireevaluation of the following:

• The borrower and each person directing a borrowing entity’s activities (a ‘‘key principal’’),including a review of their experience, credit, operating, bankruptcy and foreclosure history;

• Historic and current property revenues and expenses;

• Potential for near-term revenue growth and opportunity for expense reduction and increasedoperating efficiencies;

• The property’s location, its attributes and competitive position within its market;

• Proposed ownership structure, financial strength and real estate experience of the borrower andproperty management;

• Third party appraisal, environmental review, flood certification, zoning and engineering studies;

• Market assessment, including property inspection, review of tenant lease files, surveys ofproperty comparables and an analysis of area economic and demographic trends;

• Review of an acceptable mortgagee’s title policy and an ‘‘as built’’ survey;

• Construction quality of the property to determine future maintenance and capital expenditurerequirements;

• The requirements for any reserves, including those for immediate repairs or rehabilitation,replacement reserves, tenant improvement and leasing commission costs, real estate taxes andproperty casualty and liability insurance; and

• For any application for one of our Agency products, we will underwrite the loan to the relevantagency’s guidelines.

With respect to our Fannie Mae loans, we maintain concentration limits to further mitigate risk.Geographic concentrations of such loans are limited, based on regional employment concentration andtrends, and we limit the aggregate amount of such loans subject to full risk-sharing for any oneborrower and elect to use modified risk-sharing for such loans of more than $50.0 million, inaccordance with Fannie Mae requirements. We also rely heavily on loan surveillance and credit risk

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management. We have a dedicated group of employees whose sole function is to monitor and analyzeloan performance from closing to payoff, with the primary goal of managing and mitigating risk withinthe Fannie Mae portfolio.

We continuously refine our underwriting criteria based upon actual loan portfolio experience andas market conditions and investor requirements evolve.

Investment Approval Process. We apply an established investment approval process to all loans andother investments proposed for our Structured Business portfolio before submitting each proposal forfinal approval. A written report is generated for every loan or other investment that is submitted to ourcredit committee for approval, which consists of our chief executive officer, chief credit officer andexecutive vice president of structured finance. The report includes a description of the prospectiveborrower and any guarantors, the collateral and the proposed use of investment proceeds, as well asborrower and property financial statements and analysis. The report also includes an analysis ofborrower liquidity, net worth, cash investment, income, credit history and operating experience. Alltransactions require the approval of a majority of the members of our credit committee. Following theapproval of a transaction, our underwriting and servicing departments, together with our assetmanagement group, assure that all loan approval terms have been satisfied and conform to lendingrequirements established for that particular transaction.

Our loan approval process for the Agency Business requires the submission of a detailed loanpackage in accordance with our underwriting checklist to our agency loan committee for approval. Ouragency loan committee consists of multiple members of our senior and executive management teams,including our chief underwriter for the Agency Business and its chief operating officer. All transactionsrequire the approval of up to four members, depending on the size of the loan. In addition, we arerequired to submit a completed loan underwriting package to Freddie Mac and HUD for approvalprior to origination.

Servicing. We service all loans and investments through our internal loan servicing department inDepew, New York. Our loan servicing operations are designed to provide prompt customer service andaccurate and timely information for account follow up, financial reporting and management review.Following the funding of an approved loan, all pertinent loan data is entered into our data processingsystem, which provides monthly billing statements, tracks payment performance and processescontractual interest rate adjustments on variable rate loans. The servicing group works closely with ourasset management group to ensure the appropriate level of customer service and monitoring of loans.

For most loans serviced under the Fannie Mae DUS program, we are required to advance, in theevent of a borrower failing to pay, the principal and interest payments and tax and insurance escrowamounts associated with a loan for four months. We are reimbursed by Fannie Mae for these advances,which may be used to offset any losses incurred under our risk-sharing obligations once the loan andthe related loss share is settled.

Under the HUD program, we are obligated to advance tax and insurance escrow amounts andprincipal and interest payments on the Ginnie Mae securities until the Ginnie Mae security is fullypaid. In the event of a default on a HUD-insured loan, we can elect to assign the loan to HUD andfile a mortgage insurance claim. HUD will reimburse approximately 99% of any losses of principal andinterest on the loan and Ginnie Mae will reimburse substantially all of the remaining losses.

Asset Management. Effective asset and portfolio management is essential to maximize theperformance and value of a real estate investment. The asset management group customizes a planwith the loan originators and underwriters to track each investment from origination throughdisposition. This group monitors each investment’s operating history, local economic trends and rentaland occupancy rates and evaluates the underlying property’s competitiveness within its market. Thisgroup assesses ongoing and potential operational and financial performance of each investment in

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order to evaluate and ultimately improve its operations and financial viability. The asset managementgroup performs frequent onsite inspections, conducts meetings with borrowers and evaluates andparticipates in the budgeting process, financial and operational review and renovation plans of eachunderlying property. This group also focuses on increasing the productivity of onsite property managersand leasing brokers. This group communicates the status of each transaction against its establishedasset management plan to senior management, in order to enhance and preserve capital, as well as toavoid litigation and potential exposure.

Timely and accurate identification of an investment’s operational and financial issues and eachborrower’s objectives is essential to implementing an executable loan workout and restructuring process,if required. Since the existing property management may not have the requisite expertise to manage theworkout process effectively, our asset management group determines the current operating andfinancial status of an asset or portfolio and performs a liquidity analysis of the property and ownershipentity and then, if appropriate, identifies and evaluates alternatives to maximize the value of aninvestment.

Operating Policies and Strategies

Investment Guidelines. Our Board of Directors has adopted general guidelines for our investmentsand borrowings to the effect that: (1) no investment will be made that would cause us to fail to qualifyas a REIT; (2) no investment will be made that would cause us to be regulated as an investmentcompany under the Investment Company Act; (3) no more than 25% of our equity (including juniorsubordinated notes as equity), determined as of the date of such investment, will be invested in anysingle asset; (4) no single mezzanine loan or preferred equity investment will exceed $75 million;(5) our Structured Business leverage (including junior subordinated notes as equity) will generally notexceed 80% of the UPB of our assets, in the aggregate; (6) we will not co-invest with our FormerManager or any of its affiliates unless such co-investment is otherwise in accordance with theseguidelines and its terms are at least as favorable to us as to our Former Manager or the affiliatemaking such co-investment; and (7) no more than 15% of our gross assets may consist of mortgage-related securities. Any exceptions to the above general guidelines require the approval of our Board ofDirectors.

Financing Policies. We finance our structured finance investments primarily by borrowing against,or ‘‘leveraging,’’ our existing portfolio and using the proceeds to acquire additional mortgage assets. Weexpect to incur debt such that we will maintain an equity-to-assets ratio no less than 20% (includingjunior subordinated notes as equity), although the actual ratio may be lower from time to timedepending on market conditions and other factors deemed relevant. Our charter and bylaws do notlimit the amount of indebtedness we can incur, and the Board of Directors has discretion to deviatefrom or change our indebtedness policy at any time, provided that we are in compliance with our bankcovenants. However, we intend to maintain an adequate capital base to protect against various businessenvironments in which our financing and hedging costs might exceed the interest income from ourinvestments.

Our structured finance investments are financed primarily by collateralized loan obligations(‘‘CLOs’’), credit facilities and repurchase agreements with institutional lenders, and senior andconvertible debt instruments. Although we expect that these will be the principal means of leveragingthese investments, we may issue common stock, preferred stock or secured, unsecured or convertiblenotes of any maturity if it appears advantageous to do so.

Our Agency Business finances loan originations with several committed and uncommittedwarehouse credit facilities on a short-term basis, as these loans are generally transferred or sold within60 days from the loan origination date. We also meet our restricted liquidity requirements and purchase

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and loss obligations with Fannie Mae and Freddie Mac through letters of credit issued by a financialinstitution.

Credit Risk Management Policy. We are exposed to various levels of credit risk depending on thenature of our underlying assets and the nature and level of credit enhancements supporting our assets.We, including our chief credit officer and our asset management group, review and monitor credit riskand other risks of loss associated with each investment. In addition, we seek to diversify our portfolioof assets to avoid undue geographic, issuer, industry and certain other types of concentrations. OurBoard of Directors monitors the overall portfolio risk and reviews levels of provision for loss.

Interest Rate Risk Management Policy. To the extent that it is consistent with our election to qualifyas a REIT, we generally follow an interest rate risk management policy intended to mitigate thenegative effects of major interest rate changes. We minimize our interest rate risk from borrowings byattempting to structure the key terms of our borrowings to generally correspond to the interest rateterms of our assets.

We may enter into hedging transactions to protect our investment portfolio from interest ratefluctuations and other changes in market conditions. These transactions may include interest rateswaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives andother hedging instruments. These instruments may be used to hedge as much of the interest rate riskwe determine is in the best interest of our stockholders, given the cost of such hedges and the need tomaintain our status as a REIT. In general, income from hedging transactions does not constitutequalifying income for purposes of the REIT gross income requirements. To the extent, however, that ahedging contract reduces interest rate risk on indebtedness incurred to acquire or carry real estateassets, any income that is derived from the hedging contract would not give rise to non-qualifyingincome for purposes of the 75% or 95% gross income tests. We may elect to bear a level of interestrate risk that could otherwise be hedged when we believe, based on all relevant facts, that bearing suchrisk is worthwhile.

Disposition Policies. We evaluate the asset portfolio in our Structured Business on a regular basisto determine if it continues to satisfy our investment criteria. Subject to certain restrictions applicableto REITs, we may sell our investments opportunistically and use the proceeds for debt reduction,additional originations, or working capital purposes.

Equity Capital Policies. Subject to applicable law, our Board of Directors has the authority,without further stockholder approval, to issue additional authorized common stock and preferred stockor otherwise raise capital, including through the issuance of senior securities and convertible debtinstruments, in any manner and on the terms and for the consideration it deems appropriate, includingin exchange for property. We may in the future issue common stock in connection with acquisitions. Wealso may issue units of partnership interest in our operating partnership in connection with acquisitions.We may, under certain circumstances, repurchase our common stock in private transactions with ourstockholders, if those purchases are approved by our Board of Directors.

Conflicts of Interest Policies. We, our executive officers, and ACM face conflicts of interestsbecause of our relationships with each other. ACM has approximately 19% of the voting interest in ourstock as of December 31, 2018. Our chairman and chief executive officer is also the chief executiveofficer of ACM and beneficially owns approximately 75% of the outstanding membership interests ofACM. One of our directors is the chief operating officer of Arbor Management, LLC (the managingmember of ACM) and a trustee of two trusts that own noncontrolling membership interests in ACM.Our general counsel is also the general counsel to ACM. Our chief financial officer is the chieffinancial officer of ACM. Our treasurer is the treasurer of ACM. Our chief executive officer, one ofour directors, general counsel, chief financial officer and treasurer, as well as our executive vicepresident of structured finance, executive vice president of structured securitization and chief credit

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officer, are members of ACM’s executive committee and, excluding our chief executive officer, ownminority membership interests in ACM.

We have implemented several policies, through board action and through the terms of our charterand our agreements with ACM, to help address these conflicts of interest, including the following:

• Our charter requires that a majority of our Board of Directors be independent directors andthat only our independent directors make any determination on our behalf with respect to therelationships or transactions that present a conflict of interest for our directors or officers; and

• Decisions concerning our participation in any transaction with ACM, or its affiliates, includingour ability to purchase securities and mortgages or other assets from ACM, or our ability to sellsecurities and assets to ACM, must be reviewed and approved by a majority of our independentdirectors.

Our Board of Directors has approved the operating policies and the strategies set forth above. OurBoard of Directors has the power to modify or waive these policies and strategies without the consentof our stockholders to the extent that the Board of Directors determines that such modification orwaiver is in the best interest of our stockholders. Among other factors, developments in the marketthat either affects the policies and strategies mentioned herein, or that change our assessment of themarket, may cause our Board of Directors to revise its policies and strategies. However, if suchmodification or waiver involves the relationship of, or a transaction between us, and ACM, theapproval of a majority of our independent directors is also required. We may not, however, amend ourcharter to change the requirement that a majority of our board consists of independent directors or therequirement that our independent directors approve related party transactions without the approval oftwo thirds of the votes entitled to be cast by our stockholders.

Federal and State Regulation of Commercial Real Estate Lending Activities

Our multifamily and commercial real estate lending, servicing and asset management businessesare subject, in certain instances, to supervision and regulation by federal and state governmentalauthorities in the U.S. In addition, these businesses may be subject to various laws and judicial andadministrative decisions imposing various requirements and restrictions, which, among other things,regulate lending activities and conduct with borrowers, establish maximum interest rates, financecharges and other charges require disclosures to borrowers and prohibit illegal discrimination. Althoughmany states do not regulate commercial finance, certain states impose limitations on interest rates, aswell as other charges on certain collection practices and creditor remedies. Some states also requirelicensing of lenders, loan brokers and loan servicers and adequate disclosure of certain contract terms.We are required to comply with certain provisions of, among other statutes and regulations, the USAPATRIOT Act, regulations promulgated by the U.S. Department of the Treasury’s Office of ForeignAsset Control and other federal and state securities laws and regulations. These legal and regulatoryrequirements that apply to us are subject to change from time to time and may become morerestrictive, making compliance with applicable requirements more difficult, expensive or otherwiserestrict our ability to conduct our business in the manner that it is now conducted.

Compliance with Federal, State and Local Environmental Laws

Properties that we may acquire directly or indirectly through partnerships, and the propertiesunderlying our structured finance investments and mortgage-related securities, are subject to variousfederal, state and local environmental laws, ordinances and regulations. Under these laws, ordinancesand regulations, a current or previous owner of real estate (including, in certain circumstances, asecured lender that acquires ownership or control of a property) may become liable for the costs ofremoval or remediation of certain hazardous or toxic substances or petroleum product releases at, on,under or in its property. These laws typically impose cleanup responsibility and liability without regard

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to whether the owner or control party knew of or was responsible for the release or presence of thehazardous or toxic substances. The costs of investigation, remediation or removal of these substancesmay be substantial and could exceed the value of the property. An owner or control party of a site maybe subject to common law claims by third parties based on damages and costs resulting fromenvironmental contamination emanating from a site. Certain environmental laws also impose liability inconnection with the handling of or exposure to materials containing asbestos. These laws allow thirdparties to seek recovery from owners of real properties for personal injuries associated with materialscontaining asbestos. Our operating costs and the values of these assets may be adversely affected by theobligation to pay for the cost of complying with existing environmental laws, ordinances andregulations, as well as the cost of complying with future legislation, and our income and ability to makedistributions to our stockholders could be affected adversely by the existence of an environmentalliability with respect to properties we may acquire. We endeavor to ensure these properties are incompliance in all material respects with all federal, state and local laws, ordinances and regulationsregarding hazardous or toxic substances or petroleum products.

Requirements of the GSEs and HUD

To maintain our status as an approved lender for Fannie Mae and Freddie Mac and as aHUD-approved mortgagee and issuer of Ginnie Mae securities, we are required to meet and maintainvarious eligibility criteria established by these entities, such as minimum net worth, operational liquidityand collateral requirements and compliance with reporting requirements. We are required to originateloans and perform our loan servicing functions in accordance with the applicable program requirementsand guidelines established by these agencies. If we fail to comply with the requirements of any of theseprograms, the agencies may terminate or withdraw our licenses and approvals to participate in the GSEor HUD programs. In addition, the agencies have the authority under their guidelines to terminate alender’s authority to sell loans to it and service their loans. The loss of one or more of these approvalswould have a material adverse impact on our operations and could result in further disqualificationwith other counterparties.

Competition

We face significant competition across our business, including, but not limited to, other mortgageREITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurancecompanies, mutual funds, institutional investors, investment banking firms, other lenders, governmentalbodies and other entities, some of which may have greater name recognition, financial resources andlower costs of capital available to them. In addition, there are numerous institutions with assetacquisition objectives similar to ours, and others may be organized in the future which may increasecompetition. Competitive variables include market presence and visibility, size of loans offered andunderwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in aparticular transaction or to employ more liberal underwriting standards when evaluating potential loans,our origination volume and profit margins for our investment portfolio could be impacted. Ourcompetitors may also be willing to accept lower returns on their investments and may succeed inoriginating the loans that we have targeted.

We compete on the basis of quality of service, relationships, loan structure, terms, pricing andindustry experience, including the knowledge of local and national commercial real estate marketconditions, loan product expertise and the ability to analyze and manage credit risk. Our competitorsalso seek to compete aggressively on the basis of these factors and our success depends on our abilityto offer attractive loan products, provide superior service, demonstrate our industry knowledge andexperience, maintain and capitalize on relationships with investors, borrowers and key loancorrespondents and remain competitive in pricing. In addition, future changes in laws, regulations andGSE/HUD program requirements, and consolidation in the commercial real estate finance market

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could lead to the entry of more competitors, or enhance the competitive strength of our existingcompetitors.

Although we believe we are well positioned to continue to compete effectively in each facet of ourbusiness, there can be no assurance that we will do so or that we will not encounter increasedcompetition in the future that could limit our ability to compete effectively.

Employees

At December 31, 2018, we employed 468 individuals, none of which are represented by a union orsubject to a collective bargaining agreement.

Corporate Governance and Internet Address

Our internet address is www.arbor.com. All of our filings with the Securities and ExchangeCommission (‘‘SEC’’) are made available free of charge through our website, including this report,quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, if any,as filed with the SEC as soon as reasonably practicable after such filing. Our website also contains ourcode of business conduct and ethics, code of ethics for chief executive and senior financial officers,corporate governance guidelines, stockholder communications with the Board of Directors, and thecharters of the committees of our Board of Directors. No information contained in or linked to ourwebsite is incorporated by reference in this report.

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Item 1A. Risk Factors

Our business is subject to various risks, including the risks listed below. If any of these risksactually occur, our business, financial condition and results of operations could be materially adverselyaffected and the value of our common stock could decline. The below listed risk factors should not beconsidered an all-inclusive list. New risk factors emerge periodically and we cannot guarantee that thefactors described below list all risks that may become material to us at any later time. Some of the riskfactors discussed below may have different impacts on our Structured and Agency Businesses.

Risks Related to Our Business

An economic slowdown, a lengthy or severe recession, or declining real estate values could harm ouroperations.

We believe the risks associated with our business are more severe during periods of economicdownturn if these periods are accompanied by declining real estate values. Declining real estate valueswould likely limit our new mortgage loan originations, since borrowers often use increases in the valueof their existing properties to support the purchase or investment in additional properties. Borrowersmay also be less able to pay principal and interest on our loans if the real estate economy weakens.Declining real estate values also significantly increase the likelihood that we will incur losses on ourloans in the event of default because the value of our collateral may be insufficient to cover our coston the loan. Any sustained period of increased payment delinquencies, foreclosures or losses couldadversely affect both our net interest income from loans in our portfolio as well as our ability tooriginate, sell and securitize loans, which would significantly harm our results of operations, financialcondition, business prospects and our ability to make distributions to stockholders.

Prolonged disruptions in the financial markets could affect our ability to obtain financing on reasonable termsand have other adverse effects on us and the market price of our common stock.

Commercial real estate is particularly adversely affected by a prolonged economic downturn andliquidity crisis, which last occurred in 2007 through 2010. These circumstances materially impactliquidity in the financial markets and result in the scarcity of certain types of financing, and, in certaincases, make certain financing terms less attractive. If economic or market conditions deteriorate, andthese adverse conditions return, lending institutions may be forced to exit markets such as repurchaselending, become insolvent, further tighten their lending standards or increase the amount of equitycapital required to obtain financing, and in such event, could make it more difficult for us to obtainfinancing on favorable terms or at all. Our profitability will be adversely affected if we are unable toobtain cost-effective financing for our investments. In addition, these factors may make it more difficultfor our borrowers to repay our loans as they may experience difficulties in selling assets, increased costsof financing or obtaining financing at all. These events may also make it more difficult or unlikely forus to raise capital through the issuance of our common stock or preferred stock. These disruptions inthe financial markets also may have a material adverse effect on the market value of our common stockand other adverse effects on us.

Increases in loan loss reserves and other impairments are likely if economic conditions deteriorate.

A decline in economic conditions could negatively impact the credit quality of our loan andinvestment portfolio and could cause us to experience increases in loan loss reserves, potential defaultsand other asset impairment charges.

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The implementation of a new accounting standard could require us to increase our allowance for loan lossesand may have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board (‘‘FASB’’) has adopted a new accounting standard thatwill be effective for us beginning in 2020. This standard, referred to as Current Expected Credit Loss,or ‘‘CECL,’’ will require financial institutions to determine periodic estimates of lifetime expectedcredit losses on loans and debt securities, including loans sold to certain GSEs, and recognize theexpected credit losses through the statement of income. This will change the current method ofproviding credit losses that are probable, which we expect may require us to increase our credit losses,and to greatly increase the data we would need to collect and review to determine the appropriate levelof expected losses. Any increase in our credit losses, or expenses incurred to determine the appropriatelevel of credit losses, may have a material adverse effect on our financial condition and results ofoperations.

Loan loss reserves are particularly difficult to estimate in a turbulent economic environment.

We perform a quarterly evaluation of our loans to determine whether an impairment charge isnecessary and adequate to absorb probable losses. The valuation process for our loan and investmentportfolio requires us to make certain estimates and judgments, which are particularly difficult todetermine during a period in which the available commercial real estate credit is limited andcommercial real estate transactions have decreased. Our estimates and judgments are based on anumber of factors, including projected cash flows from the collateral securing our commercial realestate loans, loan structure, including the availability of reserves and recourse guarantees, likelihood ofrepayment in full at loan maturity, potential for a refinancing market coming back to commercial realestate in the future and expected market discount rates for varying property types. If our estimates andjudgments are not correct, our results of operations and financial condition could be severely impacted.

Loan repayments are less likely in a volatile market environment.

In a market in which liquidity is essential to our business, particularly our Structured Business,loan repayments have been a significant source of liquidity for us. If borrowers are unable to refinanceloans at maturity, the loans could go into default and the liquidity that we would receive from suchrepayments will not be available. Furthermore, in the event the commercial real estate finance marketdeteriorates, borrowers that are performing on their loans will most likely extend such loans if theyhave that right, which will further delay our ability to access liquidity through repayments.

We may not be able to access the debt or equity capital markets on favorable terms, or at all, for additionalliquidity, which could adversely affect our business, financial condition and operating results.

Additional liquidity, future equity or debt financing may not be available on terms that arefavorable to us, or at all. Our ability to access additional debt and equity capital depends on variousconditions in these markets, which are beyond our control. If we are able to complete future equityofferings, they could be dilutive to our existing stockholders or could result in the issuance of securitiesthat have rights, preferences and privileges that are senior to those of our other securities. Our inabilityto obtain adequate capital could have a material adverse effect on our business, financial condition,liquidity and operating results.

We may be unable to invest excess equity capital on acceptable terms or at all, which would adversely affectour operating results.

We may not be able to identify investments that meet our investment criteria and we may not besuccessful in closing the investments that we identify. In addition, the investments that we acquire withour equity capital may not produce a return on capital. There can be no assurance that we will be able

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to identify attractive opportunities to invest our equity capital, which would adversely affect our resultsof operations.

The price of our common stock may be volatile.

The trading price of our common stock may be highly volatile and could be subject to fluctuationsin response to a number of factors beyond our control, including the general reputation of REITs andthe attractiveness of our equity securities in comparison to other equity securities, including securitiesissued by other real estate-based companies; our financial performance; and general stock and bondmarket conditions.

The market value of our stock is based primarily on the market’s perception of our growthpotential and our current and potential future earnings and dividends. Consequently, our stock maytrade at prices that are higher or lower than our book value per share of stock. If our future earningsor dividends are less than expected, it is likely that the market price of our stock will diminish.

Furthermore, in recent years, the stock markets have experienced extreme price and volumefluctuations that have affected and continue to affect the market prices of equity securities of manycompanies. These fluctuations often have been unrelated or disproportionate to the operatingperformance of those companies. These broad market and industry fluctuations, as well as generaleconomic, political and market conditions such as recessions and interest rate changes, may negativelyimpact the market price of our stock. If the market price of our stock declines, you may not realize anyreturn on your investment in us and may lose some or all of your investment.

In the past, companies that have experienced volatility in the market price of their stock have beensubject to securities class action litigation. We may be the target of this type of litigation in the future.Securities litigation against us could result in substantial costs and divert management’s attention fromother business concerns, which could also harm our business.

A declining portfolio could adversely affect the returns from our investments.

Conditions in the capital markets could lead to a reduction in our loan and investment portfolio. Ifwe do not have the opportunity to originate quality investments to replace the reductions in ourportfolio, this reduction will likely result in reduced returns from our investments.

Changes in interest rates could have an adverse effect on our net investment income.

A significant portion of our loans and borrowings in our Structured Business are variable-rateinstruments based on LIBOR. However, a portion of our loan portfolio is fixed-rate or is subject tointerest rate floors that limit the impact of a decrease in interest rates. In addition, certain of ourborrowings are also fixed rate or may be subject to interest rate swaps that hedge our exposure tointerest rate risk on fixed rate loans financed with variable rate debt. As a result, the impact of achange in interest rates may be different on our interest income than it is on our interest expense. Inthe event of a significant rising interest rate environment and/or economic downturn, defaults couldincrease and result in credit losses to us, which could adversely affect our liquidity and operatingresults. Further, such delinquencies or defaults could have an adverse effect on the spreads betweeninterest-earning assets and interest-bearing liabilities.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR,announced that it intends to stop persuading or compelling banks to submit rates for the calculation ofLIBOR to the administrator of LIBOR after 2021. It is unclear whether or not LIBOR will cease toexist at that time or if new methods of calculating LIBOR will be established such that it continues toexist after 2021. The Federal Reserve, in conjunction with the Alternative Reference Rates Committee,a steering committee comprised of large U.S. financial institutions, announced replacement of U.S.

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dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S.Treasury securities called the Secured Overnight Financing Rate (‘‘SOFR’’). The first publication ofSOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBORreplacement tool remains in question and the future of LIBOR at this time is uncertain. If LIBORceases to exist, we may need to renegotiate with borrowers and financing institutions that utilizeLIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that isestablished. As such, the potential effect of any such event on our cost of capital and interest incomecannot yet be determined.

We depend on key personnel with long standing business relationships, the loss of whom could threaten ourability to operate our business successfully.

Our future success depends, to a significant extent, upon the continued services of key personnel.In particular, the mortgage lending experience of our chief executive officer and executive vicepresident of structured finance and the extent and nature of relationships they have developed withdevelopers and owners of multifamily and commercial properties and other financial institutions, arecritical to our success. We cannot assure their continued employment as our officers. The loss ofservices of one or more members of our management team could harm our business and our prospects.

We may not be able to hire and retain qualified loan originators or grow and maintain our relationships withkey customers, and if we are unable to do so, our ability to implement our business and growth strategiescould be limited.

We depend on our loan originators to generate borrower clients by, among other things,developing relationships with commercial property owners, real estate agents and brokers, developersand others, which leads to repeat and referral business. Accordingly, we must be able to attract,motivate and retain skilled loan originators. The market for loan originators is highly competitive andmay lead to increased costs to hire and retain them. We cannot guarantee that we will be able toattract or retain qualified loan originators. If we cannot attract, motivate or retain a sufficient numberof skilled loan originators, or even if we can motivate or retain them but at higher costs, we could bematerially and adversely affected.

The real estate investment business is highly competitive. Our success depends on our ability to compete withother providers of capital for real estate investments.

Our business is highly competitive. Competition may cause us to accept economic or structuralfeatures in our investments, particularly in our Structured Business, that we would not have otherwiseaccepted and it may cause us to search for investments in markets outside of our traditional productexpertise. We compete for attractive investments with traditional lending sources, such as insurancecompanies and banks, as well as other REITs, specialty finance companies and private equity vehicleswith similar investment objectives, which may make it more difficult for us to consummate our targetinvestments. Many of our competitors have greater financial resources and lower costs of capital thanwe do, which provides them with greater operating flexibility and a competitive advantage relative tous.

We may not achieve our targeted rate of return on our investments.

We originate or acquire investments based on our estimates or projections of overall rates ofreturn on such investments, which in turn are based upon, among other considerations, assumptionsregarding the performance of assets, the amount and terms of available financing to obtain desiredleverage and the manner and timing of dispositions, including possible asset recovery and remediationstrategies, all of which are subject to significant uncertainty. In addition, events or conditions that wehave not anticipated may occur and may have a significant effect on the actual rate of return received

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on an investment. As we acquire or originate investments, whether as new additions or as replacementsfor maturing investments, there can be no assurance that we will be able to produce rates of returncomparable to returns on our previous or existing investments.

Our due diligence may not reveal all of a borrower’s liabilities and may not reveal other weaknesses in itsbusiness.

Before making a loan to a borrower, we assess the strength and skills of such entity’s managementand other factors we believe are material to the performance of the investment. In performing our duediligence, we rely on the resources available to us and, in some cases, an investigation by third parties.This process is particularly important and subjective with respect to newly organized entities becausethere may be little or no information publicly available about the entities. There can be no assurancethat our due diligence process will uncover all relevant facts or that any investment will be successful.

Preferred equity investments involve a greater risk of loss than traditional debt financing.

In our Structured Business, we invest in preferred equity investments, which involve a higherdegree of risk than traditional debt financing due to a variety of factors, including that suchinvestments are subordinate to other loans and are not secured by property underlying the investment.Furthermore, should the issuer default on our investment, we would only be able to proceed againstthe entity in which we have an interest, and not the property underlying our investment. As a result, wemay not recover some or all of our investment.

We invest in mezzanine loans which are subject to a greater risk of loss than loans with a first priority lien onthe underlying real estate.

In our Structured Business, we invest in mezzanine loans that take the form of subordinated loanssecured by second mortgages on the underlying property or loans secured by a pledge of the ownershipinterests of either the entity owning the property or a pledge of the ownership interests of the entitythat owns the interest in the entity owning the property. These types of investments involve a higherdegree of risk than long-term senior mortgage lending secured by income producing real propertybecause the investment may become unsecured as a result of foreclosure by the senior lender. In theevent of a bankruptcy of the entity providing the pledge of its ownership interests as security, we maynot have full recourse to the assets of such entity, or the assets of the entity may not be sufficient tosatisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, orin the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt.As a result, we may not recover some or all of our investment. In addition, mezzanine loans may havehigher loan to value ratios than conventional mortgage loans, resulting in less equity in the propertyand increasing the risk of loss of principal.

We invest in junior participation loans which may be subject to additional risks relating to the privatelynegotiated structure and terms of the transaction, which may result in losses to us.

In our Structured Business, we invest in junior participation loans, which are mortgage loanstypically (i) secured by a first mortgage on a single commercial property or group of related propertiesand (ii) subordinated to a senior note secured by the same first mortgage on the same collateral. As aresult, if a borrower defaults, there may not be sufficient funds remaining for the junior participationloan after payment is made to the senior note holder. Since each transaction is privately negotiated,junior participation loans can vary in their structural characteristics and risks. For example, the rights ofholders of junior participation loans to control the process following a borrower default may be limitedin certain investments. We cannot predict the terms of each junior participation investment. A juniorparticipation may not be liquid and, consequently, we may be unable to dispose of underperforming or

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non-performing investments. The higher risks associated with a subordinate position in any investmentwe make could subject us to increased risk of losses.

We invest in multifamily and commercial real estate loans, which may involve a greater risk of loss thansingle family real estate loans.

Our investments include multifamily and commercial real estate loans that may involve a higherdegree of risk than single family residential lending because of a variety of factors, including generallylarger loan balances, dependency for repayment on successful operation of the mortgaged property andtenant businesses operating therein, and loan terms that include amortization schedules longer than thestated maturity and provide for balloon payments at stated maturity rather than periodic principalpayments. In addition, the value of commercial real estate can be affected significantly by the supplyand demand in the market for that type of property.

Volatility of values of multifamily and commercial properties may adversely affect our loans and investments.

Multifamily and commercial property values and net operating income derived from suchproperties are subject to volatility and may be affected adversely by a number of factors, including, butnot limited to, events such as natural disasters, including hurricanes and earthquakes, acts of warand/or terrorism and others that may cause unanticipated and uninsured performance declines and/orlosses to us or the owners and operators of the real estate securing our investment; national, regionaland local economic conditions, such as what we have experienced in past years (which may be adverselyaffected by industry slowdowns and other factors); local real estate conditions (such as an oversupply ofhousing, retail, industrial, office or other commercial space); changes or continued weakness in specificindustry segments; construction quality, construction cost, age and design; demographic factors;retroactive changes to building or similar codes; and increases in operating expenses (such as energycosts). In the event a property’s net operating income decreases, a borrower may have difficultyrepaying our loan, which could result in losses to us. In addition, decreases in property values reducethe value of the collateral and the potential proceeds available to a borrower to repay our loans, whichcould negatively impact our operating results.

Many of our commercial real estate loans are funded with interest reserves and our borrowers may be unableto replenish those interest reserves once they run out.

Given the transitional nature of many of our commercial real estate loans in our StructuredBusiness portfolio, we often require borrowers to post reserves to cover interest and operating expensesuntil the property cash flows are projected to increase sufficiently to cover debt service costs. We alsogenerally require the borrower to replenish reserves if they become depleted due to underperformanceor if the borrower wants to exercise extension options under the loan. Despite low interest rates,revenues on the properties underlying any commercial real estate loan investments would decrease inan economic downturn, making it more difficult for borrowers to meet their payment obligations to us.In the future, some borrowers may continue to have difficulty servicing our debt and will not havesufficient capital to replenish reserves, which could have a significant impact on our operating resultsand cash flows.

We may not have control over certain of our loans and investments.

Our ability to manage our structured portfolio of loans and investments may be limited by theform in which they are made. In certain situations, we may acquire investments subject to rights ofsenior classes and servicers under inter-creditor or servicing agreements; acquire only a participation inan underlying investment; co-invest with third parties through partnerships, joint ventures or otherentities, thereby acquiring noncontrolling interests; or rely on independent third party management orstrategic partners with respect to the management of an asset. Therefore, we may not be able to

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exercise control over the loan or investment. Such financial assets may involve risks not present ininvestments where senior creditors, servicers or third party controlling investors are not involved. Ourrights to control the process following a borrower default may be subject to the rights of seniorcreditors or servicers whose interests may not be aligned with ours. A third party partner may havefinancial difficulties resulting in a negative impact on such assets and may have economic or businessinterests or goals which are inconsistent with ours. In addition, we may, in certain circumstances, beliable for the actions of our third party partners.

Real estate property may fail to perform as expected.

We may obtain real estate properties through foreclosure proceedings or investment. Suchproperties may not perform as expected and may subject us to unknown liabilities relating to suchproperties for clean-up of undisclosed environmental contamination or claims by tenants, vendors orother persons against the former owners of the properties. Inaccurate assumptions regarding futurerental or occupancy rates could result in overly optimistic estimates of future revenues. In addition,future operating expenses or the costs necessary to bring an obtained property up to standardsestablished for its intended market position may be underestimated.

The adverse resolution of a lawsuit could have a material adverse effect on our financial condition and resultsof operations.

The adverse resolution of litigation for which we have been named as a defendant could have amaterial adverse effect on our financial condition and results of operations. See Note 15—Commitments and Contingencies for information on our current litigation.

The impact of any future terrorist attacks and the availability of terrorism insurance expose us to certainrisks.

Any future terrorist attacks, the anticipation of any such attacks, and the consequences of anymilitary or other response by the U.S. and its allies may have an adverse impact on the U.S. financialmarkets and the economy in general. We cannot predict the severity of the effect that any such futureevents would have on the U.S. financial markets, including the real estate capital markets, the economyor our business. Any future terrorist attacks could adversely affect the credit quality of some of ourloans and investments. Some of our loans and investments will be more susceptible to such adverseeffects than others. We may suffer losses as a result of the adverse impact of any future terroristattacks and these losses may adversely impact our results of operations.

The Terrorism Risk Insurance Act, or the TRIA, and other current legislation, requires insurers tomake terrorism insurance available under their property and casualty insurance policies in order toreceive federal compensation under TRIA for insured losses. However, this legislation does notregulate the pricing of such insurance. The absence of affordable insurance coverage may adverselyaffect the general real estate lending market, lending volume and the market’s overall liquidity and mayreduce the number of suitable investment opportunities available to us and the pace at which we areable to make investments. If the properties that we invest in are unable to obtain affordable insurancecoverage, the value of those investments could decline and in the event of an uninsured loss, we couldlose all or a portion of our investment.

Failure to maintain an exemption from regulation as an investment company under the Investment CompanyAct would adversely affect our results of operations.

We believe that we conduct, and we intend to conduct our business in a manner that allows us toavoid being regulated as an investment company under the Investment Company Act. Pursuant toSection 3(c)(5)(C) of the Investment Company Act, entities that are primarily engaged in the business

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of purchasing or otherwise acquiring ‘‘mortgages and other liens on and interests in real estate’’ arecurrently exempted from regulation thereunder. The staff of the SEC has provided guidance on theavailability of this exemption. Specifically, the staff’s position generally requires a company to maintainat least 55% of its assets directly in ‘‘qualifying real estate interests.’’ To constitute as a qualifying realestate interest under this 55% test, an interest in real estate must meet various criteria. Loans that aresecured by equity interests in entities that directly or indirectly own the underlying real property, ratherthan a mortgage on the underlying property itself, and ownership of equity interests in real propertyowners may not qualify for purposes of the 55% test depending on the type of entity. Mortgage-relatedsecurities that do not represent all of the certificates issued with respect to an underlying pool ofmortgages may also not qualify for purposes of the 55% test. Therefore, our ownership of these typesof loans and equity interests may be limited by the provisions of the Investment Company Act. Therecan be no assurance that the laws and regulations governing the Investment Company Act status ofREITs, including the guidance of the Division of Investment Management of the SEC regarding thisexemption, will not change in a manner that adversely affects our operations. To the extent that we donot comply with the 55% test, another exemption or exclusion from registration as an investmentcompany under that Act or other interpretations under the Investment Company Act, or if the SEC nolonger permits our exemption, we may be deemed to be an investment company. If we fail to maintainan exemption or other exclusion from registration as an investment company we could, among otherthings, be required either (a) to substantially change the manner in which we conduct our operations toavoid being required to register as an investment company or (b) to register as an investment company,either of which could have an adverse effect on us and the market price of our common stock. If wewere required to register as an investment company under that Act, we would become subject tosubstantial regulation with respect to our capital structure (including our ability to use leverage),management, operations, transactions with affiliated persons (as defined in the Investment CompanyAct), portfolio composition, including restrictions with respect to diversification and industryconcentration and other matters.

One of our subsidiaries is required to register under the Investment Advisors Act, and is subject to regulationunder that Act.

One of our subsidiaries is subject to the extensive regulation prescribed by the Investment AdvisersAct. The SEC oversees activities as a registered investment adviser under this regulatory regime. Afailure to comply with the obligations imposed by the Investment Advisers Act, including record-keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulentactivities, could result in fines, censure, suspensions of personnel or investing activities or othersanctions, including revocation of our registration as an investment adviser. The regulations under theInvestment Advisers Act are designed primarily to protect investors and other clients, and are notdesigned to protect holders of our publicly traded stock. Even if a sanction imposed against oursubsidiary or its personnel involves a small monetary amount, the adverse publicity related to suchsanction could harm our reputation and our relationship with our investors and impede our ability toraise additional capital. In addition, compliance with the Investment Advisors Act may require us toincur additional costs, and these costs may be material.

The impact of any future laws, as well as amendments to current laws, may place restrictions on our business.

Future legislation could impose additional financial obligations or restrictions with respect to ourbusiness. The past economic environment has placed an increased level of scrutiny on the financialservices sector, which led to the signing of the Dodd-Frank Act in 2010. Many aspects of theDodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult toanticipate the overall financial impact on us and, more generally, the financial services and mortgageindustries. It is difficult to predict the exact nature of any future legislation or regulatory initiatives and

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the extent to which such legislation or regulation, if any, will impact our business, financial condition,or results of operations.

The effects of government regulation could negatively impact the market value of loans related to developmentprojects.

Loans related to development projects bear additional risk in that government regulation couldimpact the value of the project by limiting the development of the property. If the proper approvals forthe completion of the project are not granted, the value of the collateral may be adversely affectedwhich may negatively impact the value of the loan.

The loss of, or changes in, our Agency Business’s relationships with the GSEs, U.S. Department of HUD andinstitutional investors would adversely affect our ability to originate commercial real estate loans through GSEand HUD programs, which would materially and adversely affect us.

Currently, the Agency Business originates nearly all of its loans for sale through GSE and HUDprograms. The Agency Business is approved as a Fannie Mae DUS lender nationwide, a Freddie MacProgram Plus lender in New York, New Jersey and Connecticut, a Freddie Mac Targeted AffordableHousing, Manufactured Housing Community, Seniors Housing and SBL lender nationwide, a HUDMAP and LEAN lender nationwide, and a Ginnie Mae issuer. Our status as an approved lenderaffords us a number of advantages and may be terminated by the applicable GSE or HUD at any time.The loss of such status would, or changes in our relationships could, prevent us from being able tooriginate commercial real estate loans for sale through the particular GSE or HUD, which wouldmaterially and adversely affect us. It could also result in a loss of similar approvals from other GSEs orHUD.

We also originate and sell loans to investment banks through the CMBS conduit markets. If theseinvestment banks discontinue their relationship with us and replacement investors cannot be found on atimely basis, we could be adversely affected.

A change to the conservatorship of Fannie Mae and Freddie Mac and related actions, along with any changesin laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. federalgovernment, could materially and adversely affect our Agency Business.

Currently, the Agency Business originates nearly all of its loans for sale through GSE and HUDprograms. Additionally, a substantial majority of our servicing rights are derived from loans we sellthrough GSE and HUD programs. Changes in the business charters, structure, or existence of one orboth of the GSEs could eliminate or substantially reduce the number of loans we may originate withthe GSEs, which in turn would lead to a reduction in fee and interest income we derive with respect tosuch loans and would also adversely affect our servicing revenue. These effects would likely cause ourAgency Business to realize significantly lower revenues from loan originations and servicing fees andultimately would have a material adverse impact on our financial results.

Conservatorships of the GSEs

The Federal Housing Finance Agency (‘‘FHFA,’’) the GSEs’ regulator, placed each GSE intoconservatorship in 2008. The conservatorship is a statutory process designed to preserve and conservethe GSEs’ assets and property and put them in a sound and solvent condition. The conservatorshipshave no specified termination dates and there continues to be significant uncertainty regarding thefuture of the GSEs, including how long they will continue to exist in their current forms, the extent oftheir roles in the housing markets, what forms they will have and whether they will continue to existfollowing conservatorship. In 2014, the FHFA released its strategic plan for the GSEs, in which itchanged its goal of ‘‘contraction’’ of the GSEs’ multifamily businesses to ‘‘maintaining’’ the businesses.

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Housing Finance Reform

In the past few years, members of Congress have introduced several bills to reform the housingfinance system, including the GSEs. Several of the bills require the wind down or receivership of theGSEs within a specified period of enactment and place certain restrictions on the GSEs’ activities priorto being wound down or placed into receivership. The Trump Administration has made commentsindicating that housing finance reform may be on its agenda, however, it is unclear at this time what itsgoals are with respect to the future of the GSE’s.

We expect Congress will continue to consider housing finance reform, including conductinghearings and considering legislation that would alter the housing finance system, including the activitiesor operations of the GSEs. We cannot predict the prospects for the enactment, timing or content oflegislative proposals regarding the future status of the GSEs. As a result, there continues to besignificant uncertainty regarding the future of the GSEs.

In November 2018, the FHFA released the GSE 2019 Scorecard (‘‘2019 Scorecard,’’) whichestablished Fannie Mae’s and Freddie Mac’s loan origination caps at $35.0 billion (‘‘2019 Caps’’) eachfor the multifamily finance market, equal to the 2018 loan origination caps. Affordable housing loans,loans to small multifamily properties, and manufactured housing rental community loans continue to beexcluded from the 2019 Caps. The 2019 Scorecard continues to provide FHFA the flexibility to reviewthe estimated size of the multifamily loan origination market quarterly and proactively adjust the 2019Caps accordingly, however, the FHFA will not reduce the 2019 Caps in the event that the multifamilymarket is smaller than anticipated. The 2019 Scorecard also continues to provide exclusions for loans toproperties in underserved markets and for loans to finance certain energy or water efficiencyimprovements, however, to qualify for this exclusion, multifamily loans that finance energy or waterefficiency improvements must now project a minimum 30% reduction in whole property energy andwater consumption and a minimum of 15% of the reduction must be in energy consumption. FHFA isalso adding a data collection requirement for all excluded Green Rewards and Green Up/Green UpPlus loans, which requires engagement of a third-party data collection firm prior to closing. Ouroriginations with the GSEs are highly profitable executions as they provide significant gains from thesale of our loans, non-cash gains related to MSRs and servicing revenues. Therefore, a decline in ourGSE originations resulting from the 2019 Caps, or otherwise, would negatively impact our financialresults. We are unsure whether the FHFA will impose stricter limitations on GSE multifamilyproduction volume in the future.

Our Agency Business is subject to risk of loss in connection with defaults on loans sold under the Fannie MaeDUS program that could materially and adversely affect our results of operations and liquidity.

Under the Fannie Mae DUS program, our Agency Business originates and services multifamilyloans for Fannie Mae without having to obtain Fannie Mae’s prior approval for certain loans, as long asthe loans meet the underwriting guidelines set forth by Fannie Mae. In return for the delegatedauthority to make loans and the commitment to purchase loans by Fannie Mae, we must maintainminimum collateral with Fannie Mae and we are required to share risk of loss on loans sold throughFannie Mae. Under the full risk-sharing formula, we absorb the first 5% of any losses on the UPB of aloan at the time of loss settlement, and above 5% we share the loss with Fannie Mae, with ourmaximum loss capped at 20% of the original UPB of a loan. Our Agency Business has modified itsrisk-sharing obligations on some Fannie Mae DUS loans to reduce potential loss exposure on thoseloans. In addition, Fannie Mae can double or triple our risk-sharing obligations if the loan does notmeet specific underwriting criteria or if the loan defaults within 12 months of its sale to Fannie Mae.As of December 31, 2018, the Agency Business had pledged $44.0 million as collateral against futurelosses under $13.56 billion of loans outstanding that are subject to risk-sharing obligations. Fannie Maecollateral requirements may change in the future. As of December 31, 2018, the Agency Business’sallowance for loss-sharing balance was $34.3 million. We cannot ensure that this balance will be

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sufficient to cover future loss sharing obligations. While our Agency Business originates loans that meetthe underwriting guidelines defined by Fannie Mae, in addition to our own internal underwritingguidelines, underwriting criteria may not always protect against loan defaults. Other factors may alsoaffect a borrower’s decision to default on a loan, such as property, cash flow, occupancy, maintenanceneeds and other financing obligations. If loan defaults increase, our risk-sharing obligation paymentsunder the Fannie Mae DUS program may increase and such defaults and payments could have amaterial adverse effect on our results of operations and liquidity. In addition, any failure to pay ourshare of losses under the Fannie Mae DUS program could result in the revocation of our license fromFannie Mae and in the exercise of various remedies available to Fannie Mae under the Fannie MaeDUS program, including the transfer of our servicing portfolio to another Fannie Mae approvedservicer.

If we fail to act proactively with delinquent borrowers in an effort to avoid a default, the number of delinquentloans could increase, which could have a material adverse effect on us.

As a loan servicer for GSEs and HUD, we are the primary contact with the borrower throughoutthe life of the loan and we are responsible, pursuant to agreements with the GSEs, HUD andinstitutional investors, for asset management. We are also responsible, together with the applicableGSE, HUD, or institutional investor, for taking actions to mitigate losses. We believe we havedeveloped an effective asset management process for tracking each loan we service. However, we maybe unsuccessful in identifying loans that are in danger of underperforming or defaulting or in takingappropriate action once those loans are identified. While we can make recommendations, decisionsregarding loss mitigation are within the control of the GSEs, HUD and institutional investors. Whenloans become delinquent, we may incur additional expenses in servicing and asset managing the loansand we are required to advance principal and interest payments and tax and insurance escrow amounts.Our Agency Business could also be subject to a loss of its contractual servicing fee, and it could sufferlosses of up to 20% (or more for loans that do not meet specific underwriting criteria or default within12 months) of the UPB of a Fannie Mae DUS loan with full risk-sharing. These items could have anegative impact on our cash flows and a negative effect on the net carrying value of the MSRs on ourbalance sheet and could result in a charge to our earnings. As a result of the foregoing, a rise indelinquencies could have a material adverse effect on our Agency Business.

A reduction in the prices paid for the loans and services of our Agency Business or an increase in loan orsecurity interest rates by investors could materially and adversely affect our results of operations and liquidity.

The Agency Business’s results of operations and liquidity could be materially and adverselyaffected if the GSEs, HUD or institutional investors lower the price they are willing to pay for loans orservices or adversely change the material terms of their loan purchases or servicing arrangements withus. A number of factors determine the price we receive for our agency loans. With respect to FannieMae related originations, loans are generally sold as Fannie Mae insured securities to third-partyinvestors. For HUD related originations, loans are generally sold as Ginnie Mae securities to third-party investors. In both cases, the price paid to us reflects, in part, the competitive market biddingprocess for these securities.

Our Agency Business sells loans directly to Freddie Mac who may choose to hold, sell or latersecuritize such loans. We believe terms set by Freddie Mac are influenced by similar market factors asthose that impact the price of Fannie Mae insured or Ginnie Mae securities, although the pricingprocess differs. With respect to loans that are placed with institutional investors, the origination feesthat we receive from borrowers are determined through negotiations, competition and other marketconditions.

Loan servicing fees are based, in part, on the risk-sharing obligations associated with the loan andthe market pricing of credit risk. The credit risk premium offered by Fannie Mae for new loans can

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change periodically but remains fixed once we enter into a commitment to sell the loan. Over the pastseveral years, Fannie Mae loan servicing fees have been higher due to the market pricing of credit risk.There can be no assurance that such fees will continue to remain at such levels or that such levels willbe sufficient if delinquencies occur.

A significant portion of our Agency Business’s revenue is derived from loan servicing fees and declines in, orterminations of, servicing engagements, or breaches of servicing agreements, could have a material adverseeffect on us.

We expect that loan servicing fees will constitute a significant portion of our Agency Business’srevenues for the foreseeable future. Nearly all of these fees are derived from loans that have beenoriginated by us and sold through GSE and HUD programs. A decline in the number or value of loansthat the Agency Business originates for these investors or terminations of its servicing engagements willdecrease these fees. HUD has the right to terminate our current servicing engagements for cause. Inaddition to termination for cause, Fannie Mae and Freddie Mac may terminate our servicingengagements without cause by paying a termination fee, which may not compensate us fully for the lossof the future servicing revenue. The Agency Business is also subject to losses that may arise as a resultof servicing errors, such as a failure to maintain insurance, pay taxes or provide required notices. If wefail to perform, or we breach our servicing obligations to the GSEs or HUD, our servicing engagementsmay be terminated. Declines or terminations of servicing engagements or breaches of such obligationscould materially and adversely affect our financial results.

We satisfy all of our restricted liquidity requirements with Fannie Mae with a letter of credit issued by one ofour lenders. If the letter of credit became unavailable to us for any reason, we could suffer a significantreduction in our cash flow from operations, or we may breach our obligations to Fannie Mae, which wouldhave a material adverse effect on our Agency Business.

Our Agency Business is required to pledge restricted cash as collateral for possible losses resultingfrom loans originated under the Fannie Mae DUS program in accordance with the terms of losssharing agreements with Fannie Mae. As of December 31, 2018, this requirement totaled $43.0 millionand was fully satisfied with a $44.0 million letter of credit issued to Fannie Mae by one of our lenders.We have an additional $1.0 million available under this letter of credit and then will be required topost cash for any future increases in this collateral requirement. Our letter of credit facility expires inSeptember 2020. The facility is collateralized by the servicing cash flow generated from the AgencyBusiness’s Fannie Mae portfolio and contains certain financial and other covenants. If we fail to satisfyany of these covenants, or we are unable to renew or replace this facility on favorable terms, or at all,it could have a material adverse effect on our cash flow and our financial condition. If we were unableto replace the letter of credit facility with either a similar facility or cash, we would be in breach of ourobligations to Fannie Mae, which would have a material adverse effect on our business and operations.

The Agency Business is subject to the risk of failed loan deliveries, and even after a successful closing anddelivery, may be required to repurchase the loan or to indemnify the investor if there is a breach of arepresentation or warranty made by the Agency Business in connection with the sale of the loan through aGSE or HUD program, any of which could have a material adverse effect on us.

Our Agency Business bears the risk that a borrower will choose not to close on a loan that hasbeen pre-sold to an investor or that the investor will choose not to purchase a loan under certaincircumstances, including, for example, a significant casualty event that impacts the condition of aproperty after we fund the loan and prior to the investor purchase date. We also bear the risk ofserious errors in loan documentation that prevent timely delivery of the loan prior to the investorpurchase date. A complete failure to deliver a loan could be a default under the warehouse line usedto finance the loan. Although the Agency Business has experienced only three failed loan deliveries in

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its history, none of which had a material impact on its financial condition or results of operations, wecan provide no assurance that we will not experience additional failed deliveries in the future or thatany losses will not be material or will be mitigated through property insurance or payment protections.

We must make certain representations and warranties concerning each loan we originate for GSEor HUD programs. The representations and warranties relate to our practices in the origination andservicing of the loans and the accuracy of the information being provided by us. For example, we aregenerally required to provide the following, among other, representations and warranties: we areauthorized to do business and to sell or assign the loan; the loan conforms to the requirements of theGSE or HUD and certain laws and regulations; the underlying mortgage represents a valid first lien onthe property and there are no other liens on the property; the loan documents are valid andenforceable; taxes, assessments, insurance premiums, rents and similar other payments have been paidor escrowed; the property is insured, conforms to zoning laws and remains intact; and we do not knowof any issues regarding the loan that are reasonably expected to cause the loan to be delinquent orunacceptable for investment or adversely affect its value. We are permitted to satisfy certain of theserepresentations and warranties by furnishing a title insurance policy.

In the event of a breach of any representation or warranty, investors could, among other things,require us to repurchase the full amount of the loan and seek indemnification for losses from it or, inthe case of Fannie Mae, increase the level of risk-sharing on the loan. Our obligation to repurchase theloan is independent of our risk-sharing obligations. The GSEs or HUD could require us to repurchasea loan if representations and warranties are breached, even if the loan is not in default. Because theaccuracy of many such representations and warranties generally is based on our actions or on third-party reports, such as title reports and environmental reports, we may not receive similarrepresentations and warranties from other parties that would serve as a claim against them. Even if wereceive representations and warranties from third parties and have a claim against them in the event ofa breach, our ability to recover on any such claim may be limited. Our ability to recover against aborrower that breaches its representations and warranties to us may be similarly limited. Our ability torecover on a claim against any party would also be dependent, in part, upon the financial condition andliquidity of such party. Although we believe that we have capable personnel at all levels, use qualifiedthird parties and have established controls to ensure that all loans are originated pursuant torequirements established by the GSEs and HUD, in addition to our own internal requirements, therecan be no assurance that we, our employees or third parties will not make mistakes. Any significantrepurchase or indemnification obligations imposed on us could have a material adverse effect on theAgency Business.

For most loans we service under the Fannie Mae and HUD programs, we are required to advance paymentsdue to investors if the borrower is delinquent in making such payments, which requirement could adverselyimpact our liquidity and harm our results of operations.

For most loans we service under the Fannie Mae DUS program, we are required to advance theprincipal and interest payments and tax and insurance escrow amounts if the borrower is delinquent inmaking loan payments. After four continuous months of making advances on behalf of the borrower,we can submit a reimbursement claim to Fannie Mae, which Fannie Mae may approve at its discretion.We are reimbursed by Fannie Mae for these advances in the event the loan is brought current. In theevent of a default, any advances made by the Agency Business are used to reduce the proceedsrequired to settle any loss share. Our advances may also be reimbursed, to the extent that the defaultsettlement proceeds on the collateral exceed the UPB.

Under the HUD program, we are obligated to advance tax and insurance escrow amounts andprincipal and interest payments on the underlying loan until the Ginnie Mae security has been fullypaid. In the event of a default on a HUD insured loan, we can elect to assign the loan to HUD andfile a mortgage insurance claim. HUD will reimburse approximately 99% of any losses of principal and

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interest on the loan and Ginnie Mae will reimburse most of the remaining losses of principal andinterest.

Although the Agency Business has historically funded all required advances from operating cashflow, there can be no assurance we will be able to do so in the future. If the Agency Business does nothave sufficient operating cash flows to fund such advances, we may need to finance such amounts. Suchfinancing may not be available to us, or, if it is available, may be costly and could prevent the AgencyBusiness from pursuing its business and growth strategies.

Risks Related to Our Financing and Hedging Activities

We may not be able to access financing sources on favorable terms, or at all, which could adversely affect ourability to execute our business plan.

We generally finance our Structured Business loans and investments through a variety of means,including CLOs, credit facilities, senior and convertible debt instruments, and other structuredfinancings. We generally finance our Agency Business loan originations, prior to sale to, orsecuritization by, an agency, through credit facilities provided by commercial banks. Our ability toexecute this strategy depends on various conditions in the markets for financing in this manner that arebeyond our control, including lack of liquidity and wider credit spreads, which we have seen over thepast several years. If conditions deteriorate, we cannot assure that these sources are feasible as a meansof financing as there can be no assurance that any existing agreements will be renewed or extended atexpiration. If our strategy is not viable, we will have to find alternative forms of financing as credit andrepurchase facilities may not accommodate our needs. This could subject us to more recourseindebtedness and the risk that debt service on less efficient forms of financing would require a largerportion of our cash flows, thereby reducing cash available for distribution to our stockholders, fundsavailable for operations as well as for future business opportunities.

Credit facilities may contain restrictive covenants relating to our operations.

Credit facilities may contain various financial covenants and restrictions, including minimum networth, liquidity and debt-to-equity ratios. Other restrictive covenants contained in credit facilityagreements may include covenants that prohibit affecting a change in control, disposing of orencumbering assets being financed, maximum debt balance requirements, and restrictions from makingmaterial amendments to underwriting guidelines without lender approval. While we actively manageour loan and investment portfolio, a weak economic environment will make maintaining compliancewith future credit facilities’ covenants more difficult. If we are not in compliance with any of thesecovenants, there can be no assurance that our lenders would waive or amend such non-compliance inthe future and any such non-compliance could have a material adverse effect on us.

We may not be able to obtain the level of leverage necessary to optimize our return on investment.

In our Structured Business, our return on investment depends, in part, upon our ability to growour portfolio of invested assets through the use of leverage at a cost of debt that is lower than the yieldearned on our investments. We typically obtain leverage through the issuance of CLOs, creditagreements and other borrowings. Our future ability to obtain the necessary leverage on beneficialterms ultimately depends upon the quality of the portfolio assets that collateralize our indebtedness.Our failure to obtain and/or maintain leverage at desired levels or on attractive terms would have amaterial adverse effect on the performance of our Structured Business. Moreover, we may bedependent upon a few lenders to provide financing under credit agreements for our origination oracquisition of loans and investments and there can be no assurance that these agreements will berenewed or extended at expiration. Our ability to obtain financing through CLOs is subject to

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conditions in the debt capital markets which are impacted by factors beyond our control that may attimes be adverse and reduce the level of investor demand for such securities.

The debt facilities that we may use to finance our investments may require us to provide additional collateral.

We may use credit facilities and repurchase agreements to finance investments in the future. If themarket value of the loans or investments pledged or sold by us to a funding source decline in value, wemay be required by the lender to provide additional collateral or pay down a portion of the fundsadvanced. We may not have the funds available to pay down such future debt, which could result indefaults. Posting additional collateral to support these potential credit facilities would reduce ourliquidity and limit our ability to leverage our assets. In the event we do not have sufficient liquidity tomeet such requirements, lenders can accelerate the indebtedness, increase interest rates and terminateour ability to borrow. Further, lenders may require us to maintain a certain amount of uninvested cashor set aside unlevered assets sufficient to maintain a specified liquidity position which would allow us tosatisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as wewould choose, which could reduce our return on assets. In the event that we are unable to meet thesecollateral obligations, our financial condition could deteriorate rapidly.

Our use of leverage may create a mismatch with the duration and index of the investments that we arefinancing.

We attempt to structure our leverage, particularly in our Structured Business, such that weminimize the difference between the term of our investments and the term of the leverage we use tofinance the investment. In the event our leverage is for a shorter term than the financed investment, wemay not be able to extend or find appropriate replacement leverage and that would have an adverseimpact on our liquidity and our returns. In the event our leverage is for a longer term than thefinanced investment, we may not be able to repay such leverage or replace the financed investmentwith an optimal substitute or at all, which will negatively impact our desired leveraged returns.

We attempt to structure our leverage such that we minimize the difference between the index ofour investments and the index of our leverage by financing floating rate investments with floating rateleverage and fixed rate investments with fixed rate leverage. If such a product is not available to usfrom our lenders on reasonable terms, we may use hedging instruments to effectively create such amatch. For example, in the case of fixed rate investments, we may finance such an investment withfloating rate leverage, but effectively convert all or a portion of the leverage to fixed rate using hedgingstrategies. Our attempts to mitigate such risk are subject to factors outside of our control, such as theavailability to us of favorable financing and hedging options, which is subject to a variety of factors, ofwhich duration and term matching are only two such factors.

We utilize a significant amount of debt to finance our portfolio, which may subject us to an increased risk ofloss, adversely affecting the return on our investments and reducing cash available for distribution.

We utilize a significant amount of debt to finance our operations, which may compound losses andreduce the cash available for distributions to our stockholders. We generally leverage our portfoliothrough the use of securitizations, including the issuance of CLOs, bank credit facilities, and otherborrowings. The leverage we employ varies depending on the types of assets being financed, availabilityof funds, ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of ourassets, the yield on our assets, the targeted leveraged return we expect from our portfolio and ourability to meet ongoing covenants related to our asset mix and financial performance. Substantially allof our assets are pledged as collateral for our borrowings. In addition, we may acquire real estateproperty subject to debt obligations. The return on our investments and cash available for distributionto our stockholders may be reduced to the extent that changes in market conditions cause the cost ofour financing to increase relative to the income that we can derive from the assets we acquire.

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Our debt service payments reduce the net income available for distributions. Moreover, we maynot be able to meet our debt service obligations and, to the extent we cannot, we risk the loss of someor all of our assets to foreclosure or sale to satisfy our debt obligations. Currently, neither our charternor our bylaws impose any limitations on the extent to which we may leverage our assets.

We may guarantee some of the leverage and contingent obligations of our subsidiaries.

We may guarantee the performance of the obligations of our subsidiaries in the future, includingbut not limited to any repurchase agreements, derivative agreements, and unsecured indebtedness.Non-performance on such obligations may cause losses to us in excess of the capital we initially mayinvest/commit to under such obligations and there is no assurance that we will have sufficient capital tocover any such losses.

We may not be able to acquire suitable investments for a CLO issuance, or we may not be able to issue CLOson attractive terms, or at all, which may require us to utilize more costly financing for our investments.

We have financed, and, if the opportunities exist in the future, we may continue to finance certainof our investments in our Structured Business through the issuance of CLOs. During the period we areacquiring investments for eventual long-term financing through CLOs, we have typically financed theseinvestments through repurchase and credit agreements. We use these agreements to finance ouracquisition of investments until we have accumulated a sufficient quantity of investments, at which timewe may refinance them through a CLO securitization. As a result, we are subject to the risk that wewill not be able to acquire a sufficient amount of eligible investments to maximize the efficiency of aCLO issuance. In addition, conditions in the debt capital markets may make the issuance of CLOs lessattractive to us even when we do have a sufficient pool of collateral, or we may not be able to executea CLO transaction on terms favorable to us or at all. If we are unable to issue a CLO to finance theseinvestments, we may be required to utilize other forms of potentially less attractive financing.

The use of CLO financings with over-collateralization and interest coverage requirements may have a negativeimpact on our cash flows.

The terms of CLOs will generally provide that the principal amount of investments must exceedthe principal balance of the related bonds by a certain amount and that interest income exceedsinterest expense by a certain amount. Generally, CLO terms provide that, if certain delinquenciesand/or losses or other factors cause a decline in collateral or cash flow levels, the cash flow otherwisepayable on subordinated classes, which may be held by us, may be redirected to repay senior classes ofCLOs until the issuer or the collateral is in compliance with the terms of the governing documents.Other tests (based on delinquency levels or other criteria) may restrict our ability to receive interestpayments from assets pledged to secure CLOs. We cannot assure that the performance tests will besatisfied. If our investments fail to perform as anticipated, our over-collateralization, interest coverageor other credit enhancement expense associated with our CLOs will increase. With respect to futureCLOs we may issue, we cannot assure, in advance of completing negotiations with the rating agenciesor other key transaction parties as to the actual terms of the delinquency tests, over-collateralizationand interest coverage terms, cash flow release mechanisms or other significant factors upon which netincome to us will be calculated. Failure to obtain favorable terms with regard to these matters mayadversely affect the availability of net income to us.

We may not be able to find suitable replacement investments for CLO reinvestment periods.

CLOs have periods where principal proceeds received from assets securing the CLO can bereinvested for a defined period of time, commonly referred to as a reinvestment period. Our ability tofind suitable investments during the reinvestment period that meet the criteria set forth in the CLOgoverning documents and by rating agencies may determine the success of our CLOs. Our potential

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inability to find suitable investments may cause, among other things, lower returns, interest deficiencies,hyper-amortization of the senior CLO liabilities and may cause us to reduce the life of the CLO andaccelerate the amortization of certain fees and expenses.

We may be required to repurchase loans that we have sold or to indemnify holders of our CLOs.

If any of the loans we originate or acquire and sell or securitize through CLOs do not comply withrepresentations and warranties we make about certain characteristics of the loans, the borrowers andthe underlying properties, we may be required to repurchase those loans or replace them withsubstitute loans. In addition, in the case of loans that we have sold instead of retained, we may berequired to indemnify persons for losses or expenses incurred as a result of a breach of arepresentation or warranty. Repurchased loans typically require a significant allocation of workingcapital to carry on our books, and our ability to borrow against such assets is limited. Any significantrepurchases or indemnification payments could adversely affect our financial condition and operatingresults.

Our loans and investments may be subject to fluctuations in interest rates which may not be adequatelyprotected, or protected at all, by our hedging strategies.

Our current investment strategy for our Structured Business emphasizes loans with both floatingand fixed interest rates. Floating rate investments earn interest at rates that adjust from time to time(typically monthly) based upon an index (typically LIBOR), allowing this portion of our portfolio to beinsulated from changes in value due specifically to changes in interest rates. Fixed rate investments,however, do not have adjusting interest rates and, as prevailing interest rates change, the relative valueof the fixed cash flows from these investments will cause potentially significant changes in value. Themajority of our interest-earning assets and interest-bearing liabilities in our Structured Business havefloating rates of interest. However, depending on market conditions, fixed rate assets may become agreater portion of our new loan originations. We may employ various hedging strategies to limit theeffects of changes in interest rates (and in some cases credit spreads), including engaging in interestrate swaps, caps, floors and other interest rate derivative products. No strategy can completely insulateus from the risks associated with interest rate changes and there is a risk that they may provide noprotection at all and potentially compound the impact of changes in interest rates. Hedging transactionsinvolve certain additional risks such as counterparty risk, the legal enforceability of hedging contracts,the early repayment of hedged transactions and the risk that unanticipated and significant changes ininterest rates may cause a significant loss of basis in the contract and a change in current periodexpense. We cannot make assurances that we will be able to enter into hedging transactions or thatsuch hedging transactions will adequately protect us against the foregoing risks. In addition, cash flowhedges which are not perfectly correlated (and appropriately designated and documented as such) witha variable rate financing will impact our reported income as gains and losses on the ineffective portionof such hedges will be recorded on our statement of income.

Hedging instruments often are not guaranteed by an exchange or its clearing house and involve risks andcosts.

The cost of using hedging instruments increases during periods of rising and volatile interest ratesand as the period covered by the instrument lengthens. We may increase our hedging activity and thusincrease our hedging costs during periods when interest rates are volatile or rising and hedging costshave increased.

In addition, hedging instruments involve risk since they currently are often not guaranteed by anexchange or clearing house. The enforceability of agreements underlying derivative transactions maydepend on compliance with applicable statutory, commodity and other regulatory requirements and,depending on the identity of the counterparty, applicable international requirements. The business

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failure of a hedging counterparty with whom we enter into a hedging transaction will most likely resultin a default. Default by a party with whom we enter into a hedging transaction may result in the loss ofunrealized profits and force us to cover our resale commitments, if any, at the then current marketprice. Although generally we will seek to reserve the right to terminate our hedging positions, it maynot always be possible to dispose of or close out a hedging position without the consent of the hedgingcounterparty, and we may not be able to enter into an offsetting contract to cover our risk. We cannotassure that a liquid secondary market will exist for hedging instruments purchased or sold, and we maybe required to maintain a position until exercise or expiration, which could result in losses.

We may enter into derivative contracts that could expose us to contingent liabilities in the future.

Subject to maintaining our qualification as a REIT, part of our investment strategy involvesentering into derivative contracts that could require us to fund cash payments in the future undercertain circumstances (e.g., the early termination of the derivative agreement caused by an event ofdefault or other early termination event, or the decision by a counterparty to request margin securitiesit is contractually owed under the terms of the derivative contract). The amount due would be equal tothe unrealized loss of the open swap positions with the respective counterparty and could also includeother fees and charges. These economic losses will be reflected in our financial results of operations,and our ability to fund these obligations will depend on the liquidity of our assets and access to capitalat the time, and the need to fund these obligations could adversely impact our financial condition.

Our investments financed in foreign locations may involve significant risks.

We have financed, and, if the opportunities exist in the future, we may continue to finance, certainof our investments outside of the U.S. Financing investments in foreign locations may expose us toadditional risks not typically inherent in the U.S. These risks include changes in exchange controlregulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets,the lack of available information, higher transaction costs, less government supervision of exchanges,brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lackof uniform accounting and auditing standards and greater price volatility.

Although our current transaction outside the U.S. is denominated in U.S. dollars, futuretransactions may be denominated in a foreign currency, which would subject us to the risk that thevalue of a particular currency may change in relation to the U.S. dollar. We may employ hedgingtechniques to minimize such risk, but we can offer no assurance that we will, in fact, hedge currencyrisk or, that if we do, such strategies will be effective. As a result, a change in currency exchange ratesmay adversely affect our profitability if future transactions outside the U.S. are denominated in aforeign currency.

Risks Relating to Regulatory Matters

If our Agency Business fails to comply with the numerous government regulations and program requirementsof the GSEs and HUD, we may lose our approved lender status with these entities and fail to gain additionalapprovals or licenses for our business. We are also subject to changes in laws, regulations and existing GSEand HUD program requirements, including potential increases in reserve and risk retention requirements thatcould increase our costs and affect the way we conduct the Agency Business, which could materially andadversely affect our financial results.

The Agency Business’s operations are subject to regulation by federal, state and local governmentauthorities, various laws and judicial and administrative decisions, and regulations and policies of theGSEs and HUD. These laws, regulations, rules and policies impose, among other things, minimum networth, operational liquidity and collateral requirements. Fannie Mae requires the Agency Business tomaintain operational liquidity based on a formula that considers the balance of the loan and the level

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of credit loss exposure (level of risk-sharing). Fannie Mae requires its DUS lenders to maintaincollateral, which may include pledged securities, for their risk-sharing obligations. The amount ofcollateral required under the Fannie Mae DUS program is calculated at the loan level and is based onthe balance of the loan, the level of risk-sharing, the seasoning of the loans and the rating of theFannie Mae DUS lender.

Regulatory authorities also require the Agency Business to submit financial reports and tomaintain a quality control plan for the underwriting, origination and servicing of loans. Numerous lawsand regulations also impose qualification and licensing obligations on the Agency Business and imposerequirements and restrictions affecting, among other things: the Agency Business’s loan originations;maximum interest rates, finance charges and other fees that we may charge; disclosures to consumers;the terms of secured transactions; collection, repossession and claims handling procedures; personnelqualifications; and other trade practices. The Agency Business is also subject to inspection by theGSEs, HUD, and regulatory authorities. Any failure to comply with these requirements could lead to,among other things, the loss of a license as an approved GSE or HUD lender, the inability to gainadditional approvals or licenses, the termination of contractual rights without compensation, demandsfor indemnification or loan repurchases, class action lawsuits and administrative enforcement actions.

Regulatory and legal requirements are subject to change. For example, Fannie Mae increased itscollateral requirements, on loans classified by Fannie Mae as Tier II, from 60 basis points to 75 basispoints in 2013, which applied to a large portion of the Agency Business’s outstanding Fannie Mae atrisk portfolio. The incremental requirement for any newly originated Fannie Mae Tier II loans will befunded over the 48 months subsequent to the sale of the loan to Fannie Mae. Fannie Mae hasindicated that it may increase collateral requirements in the future, which may adversely impact ourAgency Business.

If we fail to comply with laws, regulations and market standards regarding the privacy, use, and security ofcustomer information, or if we are the target of a successful cyber-attack, we may be subject to legal andregulatory actions and our reputation would be harmed.

We receive, maintain, and store the non-public personal information of our loan applicants. Thetechnology and other controls and processes designed to secure our customer information and toprevent, detect, and remedy any unauthorized access to that information were designed to obtainreasonable, not absolute, assurance that such information is secure and that any unauthorized access isidentified and addressed appropriately. We are not aware of any data breaches, successful hackerattacks, unauthorized access and misuse, or significant computer viruses affecting our networks thatmay have occurred in the past; however, our controls may not have detected, and may in the future failto prevent or detect, unauthorized access to our borrower information. If this information isinappropriately accessed and used by a third party or an employee for illegal purposes, such as identitytheft, we may be responsible to the affected applicant or borrower for any losses that may have beenincurred as a result of misappropriation. In such an instance, we may also be liable to a governmentalauthority for fines or penalties associated with a lapse in the integrity and security of our customers’information.

Risks Related to Our Corporate and Ownership Structure

We are significantly influenced by ACM and our chief executive officer.

Our chairman, chief executive officer and president and the chief executive officer of ACM,beneficially owns approximately 75% of the outstanding membership interests of ACM. ACM hasapproximately 19% of the voting power of our outstanding stock as of December 31, 2018. As a resultof our chief executive officer’s beneficial ownership of stock held by ACM, as well as his beneficialownership of additional shares of our common stock, our chief executive officer has approximately 20%

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of the voting power of our outstanding stock as of December 31, 2018. Because of his positions with usand ACM, and his ability to effectively vote a substantial minority of our outstanding stock, our chiefexecutive officer has significant influence over our policies and strategy.

Our charter generally does not permit ownership in excess of 5% of our capital stock, and attempts to acquireour capital stock in excess of this limit are ineffective without prior approval from our Board of Directors.

For the purpose of preserving our REIT qualification, our charter generally prohibits a beneficialor constructive ownership by any person of more than 5% (by value or by number of shares, whicheveris more restrictive) of the outstanding shares of our common stock or 5% (by value) of our outstandingshares of stock of all classes or series (excluding operating partnership units (‘‘OP Units’’)), unless anexemption is granted by the Board of Directors. Our charter’s constructive ownership rules are complexand may cause the outstanding stock owned by a group of related individuals or entities to be deemedto be constructively owned by one individual or entity. As a result, the acquisition of less than thesepercentages of the outstanding stock by an individual or entity could cause that individual or entity toown constructively in excess of these percentages of the outstanding stock and thus be subject to ourcharter’s ownership limit. Any attempt to own or transfer shares of our common or preferred stock inexcess of the ownership limit without the consent of the Board of Directors will result in the sharesbeing automatically transferred to a charitable trust or otherwise voided. Our Board of Directors haveapproved resolutions under our charter allowing our chief executive officer and ACM, in relation toour chief executive officer’s controlling equity interest, a former director, as well as four outsideinvestors, to own more than the ownership interest limit of our common stock stated in our charter.

Our staggered board and other provisions of our charter and bylaws may prevent a change in our control.

Our Board of Directors is divided into three classes of directors. The current terms of the Class I,Class II and Class III directors will expire in 2019, 2020 and 2021, respectively. Directors of each classare chosen for three year terms upon the expiration of their current terms, and each year one class ofdirectors is elected by the stockholders. The staggered terms of our directors may reduce the possibilityof a tender offer or an attempt at a change in control, even though a tender offer or change in controlmight be in the best interest of our stockholders. In addition, our charter and bylaws also contain otherprovisions that may delay or prevent a transaction or a change in control that might involve a premiumprice for our common stock or otherwise be in the best interest of our stockholders.

Risks Related to Our Status as a REIT

If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face asubstantial tax liability.

We conduct our operations to qualify as a REIT under the Internal Revenue Code of 1986, asamended (the ‘‘Internal Revenue Code’’). However, qualification as a REIT involves the application ofhighly technical and complex Internal Revenue Code provisions for which only limited judicial andadministrative authorities exist. Even a technical or inadvertent mistake could jeopardize our REITstatus. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income,organizational, distribution, stockholder ownership and other requirements on a continuing basis. Inaddition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions ofthird parties over which we have no control or only limited influence, including in cases where we ownan equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.

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Furthermore, new tax legislation, administrative guidance or court decisions, in each instancepotentially with retroactive effect, could make it more difficult or impossible for us to qualify as aREIT. If we fail to qualify as a REIT in any tax year, then:

• We would be taxed as a regular domestic corporation, which, among other things, means wewould be unable to deduct distributions to stockholders in computing taxable income and wouldbe subject to federal income tax on our taxable income at regular corporate rates;

• Any resulting tax liability could be substantial and would reduce the amount of cash availablefor distribution to stockholders; and

• Unless we were entitled to relief under applicable statutory provisions, we would be disqualifiedfrom treatment as a REIT for the subsequent four taxable years following the year during whichwe lost our qualification, and thus, our cash available for distribution to stockholders would bereduced for each of the years during which we did not qualify as a REIT.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state andlocal taxes on our income and assets, including taxes on any undistributed income, tax on income fromsome activities conducted as a result of a foreclosure, and state or local income, property and transfertaxes, such as mortgage recording taxes. Any of these taxes would decrease cash available fordistribution to our stockholders. In addition, in order to meet the REIT qualification requirements, orto avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealerproperty or inventory, we hold some of our assets through taxable subsidiary corporations, the incomeof which would be subject to federal and state income tax.

The Agency Business may have adverse tax consequences.

As REITs, we and Arbor Realty SR, Inc. generally are unable to directly hold certain assets andoperations in connection with the Agency Business. As a result, we are holding those assets andoperations through our taxable REIT subsidiaries (each, a TRS) of Arbor Realty SR, Inc., which issubject to regular corporate income tax. Moreover, under the REIT asset tests, no more than 20% ofour total gross assets may consist of the stock or other securities of one or more TRSs. In addition,although dividends payable by TRSs constitute qualifying income for purposes of the 95% REIT grossincome test, they are non-qualifying income for purposes of the 75% REIT gross income test.Accordingly, if the value of our Agency Business or the income generated thereby increases relative tothe value of our other, REIT-compliant assets and income, we or Arbor Realty SR, Inc. may fail tosatisfy one or more of the requirements applicable to REITs. Although the Agency Business is notexpected to adversely affect our ability, or that of Arbor Realty SR, Inc., to continue to qualify as aREIT in the future, no assurances can be given in that regard.

The ‘‘taxable mortgage pool’’ rules may increase the taxes that we or our stockholders may incur, and maylimit the manner in which we effect future securitizations.

Certain of our securitizations have resulted in the creation of taxable mortgage pools for federalincome tax purposes. So long as 100% of the equity interests in a taxable mortgage pool are owned byan entity that qualifies as a REIT, including our subsidiary Arbor Realty SR, Inc., we would generallynot be adversely affected by the characterization of the securitization as a taxable mortgage pool.Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other taxbenefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject tounrelated business income tax, could be subject to increased taxes on a portion of their dividendincome from us that is attributable to the taxable mortgage pool. In addition, to the extent that ourstock is owned by tax-exempt ‘‘disqualified organizations,’’ such as certain government-related entities

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that are not subject to tax on unrelated business income, we could incur a corporate level tax on aportion of our income from the taxable mortgage pool. In that case, we may reduce the amount of ourdistributions to any disqualified organization whose stock ownership gave rise to the tax. Moreover, wecould be precluded from selling equity interests in these securitizations to outside investors, or sellingany debt securities issued in connection with these securitizations that might be considered to be equityinterests for tax purposes. These limitations may prevent us from using certain techniques to maximizeour returns from securitization transactions.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes we must continually satisfy tests concerning,among other things, the sources of our income, the nature and diversification of our assets, theamounts we distribute to our stockholders and the ownership of our stock. We may be required tomake distributions to stockholders at disadvantageous times or when we do not have funds readilyavailable for distribution. Thus, compliance with the REIT requirements may hinder our ability tooperate solely on the basis of maximizing profits.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT we must ensure that at the end of each calendar quarter at least 75% of thevalue of our assets consists of cash, cash items, government securities and qualified REIT real estateassets. The remainder of our investment in securities generally cannot comprise more than 10% of theoutstanding voting securities, or more than 10% of the total value of the outstanding securities, of anyone issuer. In addition, in general, no more than 5% of the value of our assets (other than assets whichqualify for purposes of the 75% asset test) may consist of the securities of any one issuer, and no morethan 20% of the value of our total assets may be represented by securities of one or more TRSs. If wefail to comply with these requirements, we must correct such failure within 30 days after the end of thecalendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result,we may be required to liquidate otherwise attractive investments.

Liquidation of collateral may jeopardize our REIT status.

To continue to qualify as a REIT, we must comply with requirements regarding our assets and oursources of income. If we are compelled to liquidate investments to satisfy our obligations to futurelenders, we may be unable to comply with these requirements, ultimately jeopardizing our status as aREIT.

We may be unable to generate sufficient revenue from operations to pay our operating expenses and to paydividends to our stockholders.

As a REIT, we are generally required to distribute at least 90% of our REIT-taxable income eachyear to our stockholders. In order to qualify for the tax benefits afforded to REITs, we intend todeclare quarterly dividends and to make distributions to our stockholders in amounts such that wedistribute all or substantially all of our REIT-taxable income each year, subject to certain adjustments.However, our ability to make distributions may be adversely affected by the risk factors described inthis report. In the event of a future downturn in our operating results and financial performance orunanticipated declines in the value of our asset portfolio, we may be unable to declare or pay quarterlydividends. The timing and amount of dividends are in the sole discretion of our Board of Directors,which considers, among other factors, our earnings, financial condition, debt service obligations andapplicable debt covenants, REIT qualification requirements and other tax considerations and capitalexpenditure requirements as our board may deem relevant.

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Among the factors that could adversely affect our results of operations and impair our ability tomake distributions to our stockholders are:

• Use of funds and our ability to make profitable structured finance investments;

• Defaults in our asset portfolio or decreases in the value of our portfolio;

• Anticipated operating expense levels may not prove accurate, as actual results may vary fromestimates; and

• Increased debt service requirements, including those resulting from higher interest rates onvariable rate indebtedness.

A change in any one of these factors could affect our ability to make distributions. If we are notable to comply with the restrictive covenants and financial ratios contained in future credit facilities,our ability to make distributions to our stockholders may also be impaired. We cannot assure that wewill be able to make distributions to our stockholders in the future or that the level of any distributionswe make will increase over time.

We may need to borrow funds to satisfy our REIT distribution requirements, and a portion of ourdistributions may constitute a return of capital. Debt service on any borrowings for this purpose will reduceour cash available for distribution.

To qualify as a REIT, we must generally, among other requirements, distribute at least 90% of ourREIT-taxable income, subject to certain adjustments, to our stockholders each year. To the extent thatwe satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will besubject to federal corporate income tax on our undistributed taxable income. In addition, we will besubject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in acalendar year is less than a minimum amount specified under federal tax laws.

From time to time, we may generate taxable income greater than our net income for financialreporting purposes, or our taxable income may be greater than our cash flow available for distributionto our stockholders. If we do not have other funds available in these situations we could be required toborrow funds, issue stock or sell investments at disadvantageous prices or find another alternativesource of funds to make distributions sufficient to enable us to satisfy the REIT distributionrequirement and to avoid corporate income tax and the 4% excise tax in a particular year.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of ourcommon stock.

The present U.S. federal income tax treatment of REITs and their shareholders may be modified,possibly with retroactive effect, by legislative, judicial or administrative action at any time, which couldaffect the U.S. federal income tax treatment of an investment in our shares. The U.S. federal incometax rules, including those dealing with REITs, are constantly under review by persons involved in thelegislative process, the Internal Revenue Service and the U.S. Treasury Department, which results instatutory changes as well as frequent revisions to regulations and interpretations.

The Tax Cuts and Jobs Act enacted in 2017 (‘‘Tax Reform’’) made substantial changes to theInternal Revenue Code. Among those changes for corporations, beginning in 2018, the corporatefederal tax rate (which impacts our TRS) has been permanently reduced from 35% to 21%; variousdeductions have been eliminated or modified, including substantial limitations on the deductibility ofinterest; and the deductions of net operating losses are subject to certain additional limitations.Changes that impact individuals and non-corporate taxpayers (which in certain cases apply on atemporary basis subject to ‘‘sunset’’ provisions) include a reduction in the top marginal rate to 37%;capital gain income (including capital gain dividends that we pay) remains subject to tax at 20%; and

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ordinary dividends paid by a REIT (including dividends that we pay that are not capital gain dividendsor ‘‘qualified dividend income’’) are generally eligible for a 20% deduction off of the applicablemarginal rate. Therefore, the top marginal rate on such dividends is generally 29.6% (80% of the topmarginal rate of 37%).

A portion of our dividends (including dividends received from our TRS) may be eligible forpreferential rates as ‘‘qualified dividend income,’’ which has a top individual tax rate of 20% to U.S.stockholders. In addition, certain U.S. stockholders who are individuals, trusts or estates, and whoseincome exceeds certain thresholds, are required to pay a 3.8% medicare tax on our dividends and gainfrom the sale of our stock.

Furthermore, certain provisions of the Tax Reform still require guidance through the issuance oftreasury regulations in order to assess their effect. There may be a substantial delay before the issuanceof such treasury regulations, increasing the uncertainty as to the ultimate effect of the statutoryamendments on us. There may also be further technical corrections legislation proposed with respect tothe provisions of the Tax Reform, the effect of which cannot be predicted and may be adverse to us orour stockholders.

Restrictions on share accumulation in REITs could discourage a change of control of us.

In order for us to qualify as a REIT, not more than 50% of the value of our outstanding shares ofcapital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of ataxable year.

To prevent five or fewer individuals from acquiring more than 50% of our outstanding shares anda resulting failure to qualify as a REIT, our charter provides that, subject to certain exceptions, noperson, including entities, may own, or be deemed to own by virtue of the attribution provisions of theInternal Revenue Code, more than 5% of the aggregate value or number of shares (whichever is morerestrictive) of our outstanding common stock, or more than 5%, by value, of our outstanding shares ofstock of all classes or series, in the aggregate.

Shares of our stock that would otherwise be directly or indirectly acquired or held by a person inviolation of the ownership limitations are, in general, automatically transferred to a trust for the benefitof a charitable beneficiary, and the purported owner’s interest in such shares is void. In addition, anyperson who acquires shares in excess of these limits is obliged to immediately give written notice to usand provide us with any information we may request in order to determine the effect of the acquisitionon our status as a REIT.

While these restrictions are designed to prevent any five individuals from owning more than 50%of our shares, they could also discourage a change in control of our company. These restrictions mayalso deter tender offers that may be attractive to stockholders or limit the opportunity for stockholdersto receive a premium for their shares if an investor makes purchases of shares to acquire a block ofshares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principle corporate offices are located in leased space at 333 Earle Ovington Boulevard,Uniondale, New York, 11553.

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Item 3. Legal Proceedings

We are not involved in any material litigation nor, to our knowledge, is any material litigationthreatened against us, other than the litigation described in Note 15—Commitments andContingencies—Litigation of this report. We have not made a loss accrual for this litigation because webelieve that it is not probable that a loss has been incurred and an amount cannot be reasonablyestimated.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities

Market Information

Our common stock is listed on the New York Stock Exchange (‘‘NYSE’’) under the symbol‘‘ABR.’’ On February 8, 2019, there were 35,558 record holders of our common stock, including personsholding shares in broker accounts under street names. The closing sale price for our common stock, asreported on the NYSE on February 8, 2019, was $11.90.

We are organized and conduct our operations to qualify as a REIT, which requires that wedistribute at least 90% of taxable income. No assurance, however, can be given as to the amounts ortiming of future distributions as such distributions are subject to our taxable earnings, financialcondition, capital requirements and such other factors as our Board of Directors deems relevant.

Equity Compensation Plan Information

The following table presents information as of December 31, 2018 regarding the 2017 AmendedOmnibus Stock Incentive Plan, as amended and restated (the ‘‘2017 Plan’’), which is our only equitycompensation plans.

Number of Securities to be Weighted AverageIssued Upon Exercise of Exercise Price of Number of Securities

Outstanding Options, Outstanding Options, Remaining AvailablePlan Category Warrants and Rights Warrants and Rights for Future Issuance

Equity compensation plans approved bysecurity holders:

2017 Plan . . . . . . . . . . . . . . . . . . . . . . . . . 0 N/A 2,530,598Equity compensation plans not approved by

security holders . . . . . . . . . . . . . . . . . . . N/A N/A N/ATotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 N/A 2,530,598

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12FEB201919065724

Performance Graph

The graph below compares the cumulative total stockholder return for our common stock with theRussell 2000 Index, the NAREIT All REITs Index and the FTSE NAREIT Mortgage REITs Index forthe five year period from December 31, 2013 to December 31, 2018. The graph assumes a $100investment on January 1, 2014 and the reinvestment of any dividends. This graph is not necessarilyindicative of future stock price performance. The information included in the graph and table belowwas obtained from S&P Global Market Intelligence.

Total Return Performance

50

100

150

200

250

12/31/13 12/31/1812/31/1712/31/1612/31/1512/31/14

Inde

x V

alue

Arbor Realty Trust, Inc.

Russell 2000 Index

NAREIT All REIT Index

FTSE NAREIT Mortgage REITs Index

Period EndingIndex 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18

Arbor Realty Trust, Inc. . . . . . . . . . . . . . . . . . . 100.00 109.51 126.04 143.40 181.52 235.95Russell 2000 Index . . . . . . . . . . . . . . . . . . . . . . 100.00 104.89 100.26 121.63 139.44 124.09NAREIT All REIT Index . . . . . . . . . . . . . . . . . 100.00 127.15 130.06 142.13 155.30 148.94FTSE NAREIT Mortgage REITs Index . . . . . . . 100.00 117.88 107.42 131.96 158.08 154.09

In accordance with SEC rules, this ‘‘Performance Graph’’ section shall not be incorporated byreference into any of our future filings under the Securities Act or the Exchange Act, and shall not bedeemed to be soliciting material or to be filed under the Securities Act or the Exchange Act.

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Item 6. Selected Financial Data

The following selected historical consolidated financial data should be read in conjunction with‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and ourhistorical consolidated financial statements and related notes included in this report ($ in thousands,except per share data).

Year Ended December 31,2018 2017 2016(1) 2015 2014

Operating Data:Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,950 $ 66,105 $ 55,089 $64,933 $58,813Total other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,131 190,487 94,511 27,936 34,287Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,454 149,889 110,920 74,067 68,649Total other (losses) gains, net . . . . . . . . . . . . . . . . . . . . . (3,845) 4,165 24,626 34,627 68,597Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . (9,731) (13,359) (825) — —Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,051 97,509 62,481 53,429 93,048Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . 7,554 7,554 7,554 7,554 7,256Net income attributable to common stockholders . . . . . . . 108,312 65,835 42,796 45,875 85,792

Share Data:Income per share, basic(2) . . . . . . . . . . . . . . . . . . . . . . . 1.54 1.14 0.83 0.90 1.71Income per share, diluted(2) . . . . . . . . . . . . . . . . . . . . . . 1.50 1.12 0.83 0.90 1.70Dividends declared per common share . . . . . . . . . . . . . . 1.13 0.72 0.62 0.58 0.52

December 31,2018 2017 2016(1) 2015 2014

Balance Sheet Data:Loans and investments, net . . . . . . . . . . . . . . . $3,200,145 $2,579,127 $1,695,732 $1,450,334 $1,459,476Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,612,175 3,625,945 2,970,786 1,827,392 1,866,494Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,314,869 2,531,236 2,018,118 1,173,189 1,246,080Redeemable preferred stock . . . . . . . . . . . . . . 89,502 89,508 89,508 89,296 89,296Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . 1,065,566 864,556 747,038 565,091 535,455

Year Ended December 31,2018 2017 2016(1) 2015 2014

Loan Volume Data:Structured Business OriginationsNew loan originations . . . . . . . . . . . . . . . . . . . $1,656,020 $1,842,974 $ 847,683 $828,218 $900,666Loan payoffs / paydowns . . . . . . . . . . . . . . . . 955,575 924,120 553,409 828,670 972,312

Agency Business OriginationsFannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . $3,332,100 $2,929,481 $1,668,581 $ — $ —Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,958 1,322,498 456,422 — —FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,523 189,087 24,630 — —CMBS/Conduit . . . . . . . . . . . . . . . . . . . . . . . 50,908 21,370 — — —Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,124,489 $4,462,436 $2,149,633 $ — $ —

Total loan commitment volume . . . . . . . . . . . . $5,104,072 $4,344,328 $2,129,720 $ — $ —

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Year Ended December 31,2018 2017 2016(1) 2015 2014

Agency Business Loan SalesFannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . $3,217,006 $3,223,953 $1,130,392 $ — $ —Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . 1,540,483 1,399,029 332,320 — —FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,747 170,554 29,673 — —CMBS/Conduit . . . . . . . . . . . . . . . . . . . . . . 50,908 21,370 — — —Total(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,924,144 $4,814,906 $1,492,385 $ — $ —

Sales margin (fee-based services as a % ofloan sales) . . . . . . . . . . . . . . . . . . . . . . . . 1.42% 1.51% 1.65% — —

MSR rate (MSR income as a % of loancommitments) . . . . . . . . . . . . . . . . . . . . . 1.94% 1.77% 2.11% — —

Other Data:Funds from operations(4) . . . . . . . . . . . . . . . $ 143,704 $ 94,330 $ 56,883 $ 43,902 $ 92,078Adjusted funds from operations(4) . . . . . . . . 113,055 83,880 48,992 58,262 95,422Funds from operations per share, diluted(4) . . 1.53 1.17 0.92 0.86 1.83Adjusted funds from operations per share,

diluted(4) . . . . . . . . . . . . . . . . . . . . . . . . . 1.21 1.04 0.79 1.14 1.89

(1) The 2016 information includes the operating results and financial data of the Acquisition, which wascompleted on July 14, 2016. See Note 21—Segment Information for details of the operating results andfinancial data pertaining to the Agency Business acquired.

(2) Excluding the impact of a $58.1 million non-cash net gain on the sale of an equity interest in 2014,basic and diluted income per share for the year ended December 31, 2014 would have each been $0.55.

(3) Loan sales were $1.91 billion for 2016, including loans that were acquired as part of the Acquisition.

(4) See Non-GAAP Financial Measures below for definitions and calculations of funds from operationsand adjusted funds from operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the sections of this report entitled‘‘Forward-Looking Statements,’’ ‘‘Risk Factors’’ and ‘‘Selected Financial Data,’’ along with the historicalconsolidated financial statements including related notes, included in this report.

Overview

Through our Structured Business, we invest in a diversified portfolio of structured finance assets inthe multifamily and commercial real estate markets, primarily consisting of bridge and mezzanine loans,including junior participating interests in first mortgages, preferred and direct equity. Through ourAgency Business, we originate, sell and service a range of multifamily finance products through GSE,HUD and CMBS programs. We retain the servicing rights and asset management responsibilities onsubstantially all loans we originate and sell under the GSE and HUD programs. We were previouslyexternally managed and advised by ACM and, on May 31, 2017, we exercised our option to fullyinternalize our management team and terminate the existing management agreement. We conduct ouroperations to qualify as a REIT. A REIT is generally not subject to federal income tax on itsREIT-taxable income that is distributed to its stockholders, provided that at least 90% of itsREIT-taxable income is distributed and provided that certain other requirements are met.

Our operating performance is primarily driven by the following factors:

Net interest income earned on our investments. Net interest income represents the amount by whichthe interest income earned on our assets exceeds the interest expense incurred on our borrowings. Ifthe yield on our assets increases or the cost or borrowings decreases, this will have a positive impact onearnings. However, if the yield earned on our assets decreases or the cost of borrowings increases, thiswill have a negative impact on earnings. Net interest income is also directly impacted by the size andperformance of our asset portfolio. We recognize the bulk of our net interest income from ourStructured Business. Additionally, we recognize net interest income from loans originated through ourAgency Business, which are generally sold within 60 days of origination.

Fees and other revenue recognized from originating, selling and servicing mortgage loans through theGSE and HUD programs. Revenue recognized from the origination and sale of mortgage loans consistsof gains on sale of loans (net of any direct loan origination costs incurred), commitment fees, brokerfees, loan assumption fees and loan origination fees. These gains and fees are collectively referred to asgain on sales, including fee-based services, net. We record income from MSRs at the time ofcommitment to the borrower, which represents the fair value of the expected net future cash flowsassociated with the rights to service mortgage loans that we originate, with the recognition of acorresponding asset upon sale. We also record servicing revenue which consists of fees received forservicing mortgage loans, net of amortization on the MSR assets recorded. Although we havelong-established relationships with the GSE and HUD agencies, our operating performance would benegatively impacted if our business relationships with these agencies deteriorate.

Income earned from our structured transactions. Our structured transactions are primarilycomprised of investments in equity affiliates, which represent unconsolidated joint venture investmentsformed to acquire, develop and/or sell real estate-related assets. If interest rates continue to rise, it islikely that income from these investments will continue to be significantly impacted, particularly fromour investment in a residential mortgage banking business, since rising interest rates generally decreasethe demand for residential real estate loans and the number of loan originations. In addition, weperiodically receive distributions from our equity investments. It is difficult to forecast the timing ofsuch payments, which can be substantial in any given quarter. We account for structured transactionswithin our Structured Business.

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Credit quality of our loans and investments, including our servicing portfolio. Effective portfoliomanagement is essential to maximize the performance and value of our loan and investment andservicing portfolios. Maintaining the credit quality of the loans in our portfolios is of criticalimportance. Loans that do not perform in accordance with their terms may have a negative impact onearnings and liquidity.

Significant Developments During 2018

Capital Markets Activity. We raised $546.5 million of capital, primarily through two issuances ofadditional senior debt and two public offerings of our common stock. We used a significant portion ofthe proceeds from these capital raises and the issuance of shares of our common stock to redeemsubstantially all of our higher cost senior debt. The remaining net proceeds of $217.1 million were usedto make investments and for general corporate purposes. See Note 11—Debt Obligations andNote 17—Equity for details.

Financing Activity.

• We increased the capacity in our credit facilities and repurchase agreements by approximately$1.00 billion, which primarily includes a $400.0 million increase to an existing Agency Businessrepurchase facility, a $250.0 million increase to the Agency Business ASAP agreement and a$150.0 million temporary increase to an Agency Business credit facility, which expired in January2019 (see Note 11—Debt Obligations for details);

• We closed our tenth collateralized securitization vehicle (CLO X) totaling $560.0 million of realestate related assets and cash, of which $441.0 million of investment grade notes were issued tothird party investors and $53.2 million of below investment-grade notes and a $65.8 millionequity interest in the portfolio were retained by us;

• We completed the unwind of CLO V, redeeming $267.8 million of outstanding notes which wererepaid primarily from refinancing the remaining assets within our existing financing facilities(including CLO X), as well as with cash held by CLO V, and expensed $1.3 million of deferredfinancing fees into interest expense; and

• We paid $50.0 million in full satisfaction of the preferred equity interest financing agreement weentered into with ACM to finance a portion of the Acquisition purchase price.

Dividend. We raised our quarterly common dividend twice during 2018 to $0.27 per share, a 42%increase over the dividend declared in the fourth quarter of 2017 of $0.19 per share. In addition, inDecember 2018, our Board of Directors declared a special dividend of $0.15 per common share, whichwas paid in a combination of $2.5 million of cash and 901,432 common shares in January 2019.

Agency Business Activity.

• Loan originations and sales totaled $5.12 billion and $4.92 billion, respectively; and

• Our fee-based servicing portfolio grew 15% to $18.60 billion from $16.21 billion atDecember 31, 2017.

Structured Business Activity.

• Our Structured loan and investment portfolio grew 24% to $3.28 billion on loan originationstotaling $1.66 billion, partially offset by loan runoff totaling $955.6 million;

• We received net proceeds of $10.2 million from the settlement of a litigation related to a priorinvestment, which was recognized as a gain; and

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• We recorded a net total provision for loan losses of $8.4 million, primarily related to a$12.3 million provision recorded on six loans secured by a land development project, partiallyoffset by reserve recoveries of $3.1 million related to previously written-off loans andinvestments. See Note 3—Loans and Investments for details.

Current Market Conditions, Risks and Recent Trends

Our ability to execute our business strategy, particularly the growth of our Structured Businessportfolio of loans and investments, depends on many factors, including our ability to access capital andfinancing on favorable terms. The past economic downturn had a significant negative impact on both usand our borrowers and limited our ability for growth. If similar economic conditions recur in thefuture, it may limit our options for raising capital and obtaining financing on favorable terms and mayalso adversely impact the creditworthiness of our borrowers which could result in their inability torepay their loans.

We rely on the capital markets to generate capital for financing the growth of our business. Whilewe have been successful in generating capital through the debt and equity markets over the past severalquarters, there can be no assurance that we will continue to have access to such markets. If we were toexperience a prolonged downturn in the stock or credit markets, it could cause us to seek alternativesources of potentially less attractive financing, and may require us to adjust our business planaccordingly.

The Federal Reserve increased its targeted federal rate 100 basis points during 2018 and 175 basispoints over the past two years. To date, we have not been significantly impacted by these increases anddo not anticipate a significant decline in origination volume or profitability as interest rates remain atrelatively low levels. However, we cannot be certain that such a trend will continue as the number,timing, and magnitude of additional increases by the Federal Reserve, combined with othermacroeconomic and market factors, may have a different effect on the commercial real estate marketand on us.

The Trump administration continues to focus on several issues that could impact interest rates andthe U.S. economy, including the recently enacted Tax Reform, which went into effect beginning in 2018.As a result of the Tax Reform, we realized a benefit from the reduction of the corporate federalincome tax rate from 35% to 21%, as our Agency Business operates in a TRS. While there isuncertainty regarding the specifics and timing of any future policy changes, any such actions couldimpact our business.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the mostsignificant providers of capital to the multifamily market. In November 2018, the FHFA released the2019 Scorecard, which established Fannie Mae’s and Freddie Mac’s 2019 Caps at $35.0 billion each forthe multifamily finance market, mirroring the 2018 loan origination caps. Affordable housing loans,loans to small multifamily properties, and manufactured housing rental community loans continue to beexcluded from the 2019 Caps. The 2019 Scorecard continues to provide FHFA the flexibility to reviewthe estimated size of the multifamily loan origination market quarterly and proactively adjust the 2019Caps accordingly, however, the FHFA will not reduce the 2019 Caps in the event that the multifamilymarket is smaller than anticipated. The 2019 Scorecard also continues to provide exclusions for loans toproperties in underserved markets and for loans to finance certain energy or water efficiencyimprovements, however, to qualify for this exclusion, multifamily loans that finance energy or waterefficiency improvements must now project a minimum 30% reduction in whole property energy andwater consumption and a minimum of 15% of the reduction must be in energy consumption. FHFA isalso adding a data collection requirement for all excluded Green Rewards and Green Up/Green UpPlus loans, which requires engagement of a third-party data collection firm prior to closing. Ouroriginations with the GSEs are highly profitable executions as they provide significant gains from the

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sale of our loans, non-cash gains related to MSRs and servicing revenues. Therefore, a decline in ourGSE originations would negatively impact our financial results. We are unsure whether the FHFA willimpose stricter limitations on GSE multifamily production volume in the future.

The commercial real estate markets remain strong, but uncertainty remains as a result of globalmarket instability, the current political climate and other matters and their potential impact on the U.S.economy and commercial real estate markets. In addition, the growth in multifamily rental rates seenover the past few years are showing signs of stabilizing. If real estate values decline and/or rent growthsubsides, it may limit our new mortgage loan originations since borrowers often use increases in thevalue of, and revenues produced from, their existing properties to support the purchase or investmentin additional properties. Declining real estate values may also significantly increase the likelihood thatwe will incur losses on our loans in the event of default because the value of our collateral may beinsufficient to cover our cost on the loan. Any sustained period of increased payment delinquencies,foreclosures or losses could adversely affect both our net interest income from loans as well as ourability to originate, sell and securitize loans, which would significantly impact our results of operations,financial condition, business prospects and our ability to make distributions to our stockholders.

The economic environment over the past few years has seen continued improvement in commercialreal estate values, which has generally increased payoffs and reduced the credit exposure in our loanand investment portfolio. We have made, and continue to make, modifications and extensions to loanswhen it is economically feasible to do so. In some cases, a modification is a more viable alternative toforeclosure proceedings when a borrower cannot comply with loan terms. In doing so, lower borrowerinterest rates, combined with non-performing loans, would lower our net interest margins whencomparing interest income to our costs of financing. However, since 2013, the levels of modificationsand delinquencies have generally declined as property values have increased and borrowers’ access tofinancing has improved. If the markets were to deteriorate and the U.S. experienced a prolongedeconomic downturn, we believe there could be additional loan modifications and delinquencies, whichmay result in reduced net interest margins and additional losses throughout our sector.

Changes in Financial Condition

Assets—Comparison of balances at December 31, 2018 to December 31, 2017:

Restricted cash increased $41.2 million, primarily due to payoffs on our CLO loans in excess ofloans transferred into our CLO vehicles. Restricted cash is kept on deposit with the trustees for ourCLOs and primarily represents proceeds received from loan payoffs and paydowns that have not yetbeen disbursed to bondholders or redeployed into new assets, as well as unfunded loan commitmentsand interest payments received from loans.

Our Structured loan and investment portfolio balance was $3.28 billion and $2.65 billion atDecember 31, 2018 and 2017, respectively. This increase was primarily due to loan originationsexceeding payoffs and other reductions by $700.4 million. See below for details.

Our portfolio had a weighted average current interest pay rate of 7.02% and 6.28% atDecember 31, 2018 and 2017, respectively. Including certain fees earned and costs associated with thestructured portfolio, the weighted average current interest rate was 7.66% and 6.99% at December 31,2018 and 2017, respectively. Advances on our financing facilities totaled $2.89 billion and $2.24 billionat December 31, 2018 and 2017, respectively, with a weighted average funding cost of 4.66% and4.12%, respectively, which excludes financing costs. Including financing costs, the weighted averagefunding rate was 5.24% and 4.83% at December 31, 2018 and 2017, respectively.

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Activity from our Structured Business portfolio was comprised of the following ($ in thousands):

Year Ended December 31,2018 2017

Loans originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,656,020 $1,842,974Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 93Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . 7.36% 7.04%

Loans paid-off / paid-down . . . . . . . . . . . . . . . . . . . . . . . . $ 955,575 $ 924,120Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 64Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . 7.60% 7.10%

Loans extended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,162 $ 426,183Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 48

Loans held-for-sale from the Agency Business increased $184.2 million, primarily related to loanoriginations exceeding loan sales during 2018 as noted in the following table (in thousands). Theseloans are generally sold within 60 days from the loan origination date.

LoanOriginations Loan Sales

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,332,100 $3,217,006Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,958 1,540,483FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,523 115,747CMBS/Conduit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,908 50,908Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,124,489 $4,924,144

Capitalized mortgage servicing rights increased $21.2 million, primarily due to MSRs recorded onnew loan originations, partially offset by amortization and write-offs. Our capitalized mortgage servicingrights represent the estimated value of our rights to service mortgage loans for others. AtDecember 31, 2018, the weighted average estimated life remaining of our MSRs was 7.6 years.

Securities held-to-maturity increased $48.5 million as a result of additional purchases of B Piecebonds from Freddie Mac SBL program securitizations. See Note 7—Securities Held-to-Maturity fordetails.

Other assets increased $23.8 million, primarily due to an increase in interest and other receivablesfrom new loan originations, as well as increases in the fair market value of our rate lock commitmentsand deferred tax assets in our Agency Business.

Liabilities—Comparison of balances at December 31, 2018 to December 31, 2017:

Credit facilities and repurchase agreements increased $607.1 million, primarily due to funding ofnew structured loan activity and an increase in financings on our loans held-for-sale, as a result of loanoriginations exceeding loan sales during 2018.

Collateralized loan obligations increased $175.1 million, primarily due to the issuance of a newCLO, where we issued $441.0 million of notes to third party investors, partially offset by the unwind ofa CLO totaling $267.8 million.

Senior unsecured notes increased $27.2 million, primarily due to the issuance of $125.0 millionaggregate principal amount of our 5.625% senior unsecured notes, partially offset by the fullredemption of our 7.375% Notes totaling $97.9 million.

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Convertible senior unsecured notes, net increased $23.5 million, primarily due to the issuance of$264.5 million of 5.25% Convertible Notes, partially offset by the settlements of $138.3 million of our5.375% Convertible Notes and $99.9 million of our 6.50% Convertible Notes.

In January 2018, we paid $50.0 million in full satisfaction of the related party financing enteredinto with ACM to finance a portion of the Acquisition purchase price.

Due to borrowers decreased $21.2 million, primarily due to a decrease in funds held on loanoriginations.

Other liabilities increased $19.0 million, primarily due to the accrual of the special dividenddeclared by our Board of Directors in December 2018.

Equity

We completed a public offering where we sold 8,700,000 shares of our common stock for$11.57 per share, and received net proceeds of $100.5 million. We used a portion of the net proceedsfrom this offering to purchase an aggregate of 870,000 shares of our common stock from our chiefexecutive officer, ACM and an estate planning family vehicle established by our chief executive officer,at the same price the underwriters paid to purchase the shares.

We completed a public offering where we sold 5,500,000 shares of our common stock for $8.72 pershare, and received net proceeds of $47.8 million.

We issued 7,296,893 shares of our common stock in connection with the initial exchanges andsubsequent settlements of our 5.375% Convertible Notes and 6.50% Convertible Notes.

Distributions

The following table presents dividends declared (on a per share basis) for 2018:

Common Stock Preferred StockDividend(1)

Declaration Date Dividend Declaration Date Series A Series B Series C

December 13, 2018(2) $0.15 October 31, 2018 $0.515625 $0.484375 $0.53125October 31, 2018 $0.27 August 1, 2018 $0.515625 $0.484375 $0.53125

August 1, 2018 $0.25 May 2, 2018 $0.515625 $0.484375 $0.53125May 2, 2018 $0.25 February 2, 2018 $0.515625 $0.484375 $0.53125

February 21, 2018 $0.21

(1) The dividend declared on October 31, 2018 was for September 1, 2018 through November 30,2018. The dividend declared on August 1, 2018 was for June 1, 2018 through August 31, 2018. Thedividend declared on May 2, 2017 was for March 1, 2018 through May 31, 2018. The dividenddeclared on February 3, 2018 was for December 1, 2017 through February 28, 2018.

(2) On December 13, 2018, our Board of Directors declared a special dividend of $0.15 per commonshare, which was paid in a combination of $2.5 million of cash and 901,432 common shares inJanuary 2019.

Common Stock—On February 13, 2019, the Board of Directors declared a cash dividend of$0.27 per share of common stock. The dividend is payable on March 20, 2019 to common stockholdersof record as of the close of business on March 1, 2019.

Preferred Stock—On February 1, 2019, the Board of Directors declared a cash dividend of$0.515625 per share of 8.25% Series A preferred stock; a cash dividend of $0.484375 per share of

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7.75% Series B preferred stock; and a cash dividend of $0.53125 per share of 8.50% Series C preferredstock. These amounts reflect dividends from December 1, 2018 through February 28, 2019 and arepayable on February 28, 2019 to preferred stockholders of record on February 15, 2019.

Deferred Compensation

In 2018, we issued 329,028 shares of restricted stock to our employees, including our chiefexecutive officer, and 67,002 shares to the independent members of the Board of Directors. We alsoissued up to 381,503 performance-based restricted common stock units and 294,985 shares ofperformance-based restricted stock to our chief executive officer. See Note 17—Equity for details.

Comparison of Results of Operations for Years Ended 2018 and 2017

The following table provides our consolidated operating results ($ in thousands):

Year Ended December 31, Increase / (Decrease)2018 2017 Amount Percent

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $251,768 $156,177 $ 95,591 61%Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,818 90,072 63,746 71%

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,950 66,105 31,845 48%Other revenue:Gain on sales, including fee-based services, net . . . . . . . . . . 70,002 72,799 (2,797) (4)%Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . 98,839 76,820 22,019 29%Servicing revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,034 29,210 16,824 58%Property operating income . . . . . . . . . . . . . . . . . . . . . . . . . 10,095 10,973 (878) (8)%Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,161 685 7,476 nm

Total other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,131 190,487 42,644 22%Other expenses:Employee compensation and benefits . . . . . . . . . . . . . . . . . 110,470 92,126 18,344 20%Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 37,074 30,738 6,336 21%Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 10,431 10,482 (51) 0%Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 7,453 7,385 68 1%Impairment loss on real estate owned . . . . . . . . . . . . . . . . . 2,000 3,200 (1,200) (38)%Provision for loss sharing (net of recoveries) . . . . . . . . . . . . 3,843 (259) 4,102 nmProvision for loan losses (net of recoveries) . . . . . . . . . . . . 8,353 (456) 8,809 nmLittigation settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . (10,170) — (10,170) nmManagement fee—related party . . . . . . . . . . . . . . . . . . . . . — 6,673 (6,673) nm

Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,454 149,889 19,565 13%Income before extinguishment of debt, income from equity

affiliates and income taxes . . . . . . . . . . . . . . . . . . . . . . . 161,627 106,703 54,924 51%(Loss) gain on extinguishment of debt . . . . . . . . . . . . . . . . (5,041) 7,116 (12,157) nmIncome (loss) from equity affiliates . . . . . . . . . . . . . . . . . . 1,196 (2,951) 4,147 nmProvision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (9,731) (13,359) 3,628 (27)%Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,051 97,509 50,542 52%Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 7,554 7,554 — —Net income attributable to noncontrolling interest . . . . . . . . 32,185 24,120 8,065 33%Net income attributable to common stockholders . . . . . . . . $108,312 $ 65,835 $ 42,477 65%

nm—not meaningful

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The following table presents the average balance of our Structured Business interest-earning assetsand interest-bearing liabilities, associated interest income (expense) and the corresponding weightedaverage yields ($ in thousands):

Year Ended December 31,2018 2017

Average Interest W/A Yield / Average Interest W/A Yield /Carrying Income / Financing Carrying Income / FinancingValue(1) Expense Cost(2) Value(1) Expense Cost(2)

Structured Business interest-earningassets:

Bridge loans . . . . . . . . . . . . . . . . . . . . $2,769,871 $196,847 7.11% $1,775,793 $118,396 6.67%Preferred equity investments . . . . . . . . 162,740 16,354 10.05% 105,947 9,335 8.81%Mezzanine / junior participation loans . 88,884 10,909 12.27% 96,329 7,616 7.91%

Core interest-earning assets . . . . . . . 3,021,495 224,110 7.42% 1,978,069 135,347 6.84%Cash equivalents . . . . . . . . . . . . . . . . . 233,646 2,640 1.13% 198,860 1,179 0.59%

Total interest-earning assets . . . . . . . $3,255,141 $226,750 6.97% $2,176,929 $136,526 6.27%

Structured Business interest-bearingliabilities:

CLO . . . . . . . . . . . . . . . . . . . . . . . . . $1,519,870 $ 68,469 4.50% $ 983,807 $ 39,442 4.01%Warehouse lines . . . . . . . . . . . . . . . . . 527,932 24,120 4.57% 223,856 9,531 4.26%Unsecured debt . . . . . . . . . . . . . . . . . 378,994 32,285 8.52% 214,634 18,018 8.39%Trust preferred . . . . . . . . . . . . . . . . . . 154,379 7,892 5.11% 155,692 6,420 4.12%Debt fund . . . . . . . . . . . . . . . . . . . . . 68,255 4,953 7.26% 8,978 530 5.90%Interest rate swaps . . . . . . . . . . . . . . . — — — — 195 —

Total interest-bearing liabilities . . . . . $2,649,430 137,719 5.20% $1,586,967 74,136 4.67%

Net interest income . . . . . . . . . . . . . . . $ 89,031 $ 62,390

(1) Based on UPB for loans, amortized cost for securities and principal amount for debt.

(2) Weighted average yield calculated based on annualized interest income or expense divided byaverage carrying value.

Net Interest Income

The increase in interest income is primarily due to an increase of $90.2 million, or 66%, from ourStructured Business, which was primarily the result of a 53% increase in our average core interest-earning assets (due to loan originations exceeding loan runoff) and an 8% increase in the average yieldon core interest-earning assets (largely due to increases in the average LIBOR rate, partially offset bylower fee income received from accelerated runoff).

The increase in interest expense is primarily due to an increase of $63.6 million, or 86%, from ourStructured Business, partially offset by a decrease of $3.5 million from the pay off in January 2018 ofthe seller financing entered into in connection with the Acquisition. The increase from our StructuredBusiness was primarily due to a 67% increase in the average balance of our interest-bearing liabilitiesand an 11% increase in the average cost of our interest-bearing liabilities. The increase in the averagedebt balance was due to growth in our loan portfolio, resulting in the issuance of additional CLOs,unsecured debt and a Luxembourg commercial real estate debt fund (‘‘Debt Fund’’). The increase inthe average cost of our interest-bearing liabilities was primarily due to $5.3 million of accelerateddeferred financing costs recorded in 2018 related to the redemption of unsecured debt and the unwindof a CLO, along with an increase in the average LIBOR rate.

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Agency Business Revenue

The increase in income from MSRs was primarily due to a $759.7 million, or 17%, increase in loancommitment volume, along with a 10% increase in the MSR rate (income from MSRs as a percentageof loan commitment volume) from 1.77% to 1.94% in 2018.

The increase in servicing revenue, net was primarily due to an increase in our servicing portfolioand an increase in earnings on escrows due to an increase in the average LIBOR rate. Our servicingportfolio increased 15% from $16.21 billion at December 31, 2017 to $18.60 billion at December 31,2018. Our servicing revenue, net in 2018 and 2017 included $48.1 million and $47.2 million,respectively, of amortization expense.

The increase in other income, net was comprised primarily of a $6.0 million increase due tochanges in the fair value of rate lock commitments in our Agency Business. See note 14—Fair Valuefor details.

Other Expenses

The increase in employee compensation and benefits expense is comprised of $10.4 million fromour Agency Business and $7.9 million from our Structured Business. The increase in both businesses ispartially due to compensation expense recorded directly by each business for the full year of 2018associated with the employees that transferred to us as a result of the internalization of ourmanagement team in May 2017. Such costs were previously charged through the management fee priorto the termination of our management agreement with ACM. In addition, higher compensation costsfrom increased headcount associated with each business’s portfolio growth also contributed to theincrease.

The increase in selling and administrative expenses is comprised of $3.9 million from ourStructured Business and $2.5 million from our Agency Business. These increases are primarily due toincreased professional fees in 2018 compared to 2017. In addition, certain costs (rent, marketing, etc.)were also higher in 2018 due to each business’s portfolio growth and such costs being recorded directlyor allocated to each business in 2018 that were included in the management fee prior to thetermination of the management agreement in May 2017.

Impairment losses on real estate owned were $2.0 million and $3.2 million for 2018 and 2017,respectively. During these periods, we received market analysis which resulted in impairment losses onour real estate properties. See Note 9—Real Estate Owned and Held-For-Sale for details.

The increase in our provision for loss sharing was primarily related to a $3.3 million reversal of aspecific reserve in 2017 related to a Fannie Mae DUS loan that settled with no loss share in ourAgency Business.

The provision for loan losses in 2018 was primarily related to a $12.3 million provision recorded onsix loans secured by a land development project, partially offset by reserve recoveries of $3.1 millionrelated to previously written-off loans and investments. The recovery of loan losses for 2017 was due tothe pay-off of a fully reserved mezzanine loan with a UPB of $1.8 million and a $0.7 million reserverecovery on a multifamily bridge loan, partially offset by a $2.0 million provision on a preferred equityinvestment. See Note 3—Loans and Investments for details.

In July 2018, we received net proceeds of $10.2 million from the settlement of a litigation relatedto a prior investment, which was recognized as a gain in 2018.

The decrease in management fee—related party was due to the internalization of our managementteam and termination of the existing management agreement with ACM effective May 31, 2017.

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(Loss) Gain on Extinguishment of Debt

The loss on extinguishment of debt in 2018 was due to the exchange of our 5.375% ConvertibleNotes and 6.50% Convertible Notes, utilizing the proceeds from our 5.25% Convertible Notes and theissuance of common shares. The gain on extinguishment of debt in 2017 was due to our discountedpurchase of our junior subordinated notes. See Note 11—Debt Obligations for details.

Income (loss) from Equity Affiliates

Income from equity affiliates in 2018 was comprised primarily of distributions from an equityinvestment totaling $2.5 million and income from our investment in a residential mortgage bankingbusiness of $0.7 million, partially offset by an other-than-temporary impairment of $2.2 millionrecorded on one of our investments. The loss from equity affiliates in 2017 was comprised primarily ofa $5.5 million charge for our proportionate share of a litigation settlement and a $1.7 million lossincurred from our investment in a residential mortgage banking business, partially offset bydistributions from other equity investments totaling $4.0 million. See Note 8—Investments in EquityAffiliates for details.

Provision for Income Taxes

The provision for income taxes primarily represents federal and state taxes related to the AgencyBusiness. The provision for income taxes in both 2018 and 2017 includes the effects of the reducedcorporate federal income tax rate of 21% on our Agency Business as a result of the Tax Reform.

The provision for income taxes in 2018 consisted of a current tax provision of $21.8 million and adeferred tax benefit of $12.0 million. The deferred tax benefit in 2018 was due primarily to ourJanuary 2018 payoff of the $50.0 million preferred equity interest entered into with ACM to finance aportion of the Acquisition purchase price. The provision for income taxes in 2017 consisted of a currenttax provision of $20.8 million and a deferred tax benefit of $7.4 million. The deferred income taxbenefit in 2017 includes a $5.3 million deferred tax benefit as a result of applying the new lowerincome tax rates to our net long-term deferred tax assets and liabilities recorded on our consolidatedbalance sheets.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the outstanding OP Units issued as part of the Acquisition.There were 20,653,584 OP Units and 21,230,769 OP Units outstanding as of December 31, 2018 and2017, respectively, which represented 19.7% and 25.6% of our outstanding stock at December 31, 2018and 2017, respectively.

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Comparison of Results of Operations for Years Ended 2017 and 2016

The following table provides our consolidated operating results ($ in thousands):

Year EndedDecember 31, Increase / (Decrease)

2017 2016 Amount Percent

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,177 $116,173 $ 40,004 34%Other interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . — 2,539 (2,539) nmInterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,072 63,623 26,449 42%

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,105 55,089 11,016 20%Other revenue:Gain on sales, including fee-based services, net . . . . . . . . . . 72,799 24,594 48,205 196%Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . 76,820 44,941 31,879 71%Servicing revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,210 9,054 20,156 nmProperty operating income . . . . . . . . . . . . . . . . . . . . . . . . . 10,973 14,881 (3,908) (26)%Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685 1,041 (356) (34)%

Total other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,487 94,511 95,976 102%Other expenses:Employee compensation and benefits . . . . . . . . . . . . . . . . . 92,126 38,647 53,479 138%Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 30,738 17,587 13,151 75%Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,262 (10,262) nmProperty operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 10,482 13,501 (3,019) (22)%Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 7,385 5,022 2,363 47%Impairment loss on real estate owned . . . . . . . . . . . . . . . . . 3,200 11,200 (8,000) (71)%Provision for loss sharing (net of recoveries) . . . . . . . . . . . . (259) 2,235 (2,494) nmProvision for loan losses (net of recoveries) . . . . . . . . . . . . . (456) (134) (322) nmManagement fee—related party . . . . . . . . . . . . . . . . . . . . . 6,673 12,600 (5,927) (47)%

Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,889 110,920 38,969 35%Income before extinguishment of debt, sale of real estate,

income from equity affiliates and income taxes . . . . . . . . . 106,703 38,680 68,023 176%Gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . 7,116 — 7,116 nmGain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . — 11,631 (11,631) nm(Loss) income from equity affiliates . . . . . . . . . . . . . . . . . . (2,951) 12,995 (15,946) nmProvision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (13,359) (825) (12,534) nmNet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,509 62,481 35,028 56%Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 7,554 7,554 — —Net income attributable to noncontrolling interest . . . . . . . . 24,120 12,131 11,989 99%Net income attributable to common stockholders . . . . . . . . . $ 65,835 $ 42,796 $ 23,039 54%

nm—not meaningful

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The following table presents the average balance of our Structured Business interest-earning assetsand interest-bearing liabilities, associated interest income (expense) and the corresponding weightedaverage yields ($ in thousands):

Year Ended December 31,2017 2016

Average Interest W/A Yield / Average Interest W/A Yield /Carrying Income / Financing Carrying Income / FinancingValue(1) Expense Cost(2) Value(1) Expense Cost(2)

Structured Business interest-earningassets:

Bridge loans . . . . . . . . . . . . . . . . . . . . $1,775,793 $118,396 6.67% $1,510,811 $ 95,211 6.28%Preferred equity investments . . . . . . . . 105,947 9,335 8.81% 78,620 5,809 7.37%Mezzanine / junior participation loans . 96,329 7,616 7.91% 111,018 7,762 6.97%

Core interest-earning assets . . . . . . . 1,978,069 135,347 6.84% 1,700,449 108,782 6.38%Cash equivalents . . . . . . . . . . . . . . . . . 198,860 1,179 0.59% 206,971 840 0.41%

Total interest-earning assets . . . . . . . $2,176,929 $136,526 6.27% $1,907,420 $109,622 5.73%

Structured Business interest-bearingliabilities:

CLO . . . . . . . . . . . . . . . . . . . . . . . . . $ 983,807 $ 39,442 4.01% $ 846,324 $ 30,239 3.56%Warehouse lines . . . . . . . . . . . . . . . . . 223,856 9,531 4.26% 181,169 6,427 3.54%Unsecured debt . . . . . . . . . . . . . . . . . 214,634 18,018 8.39% 117,983 9,718 8.21%Trust preferred . . . . . . . . . . . . . . . . . . 155,692 6,420 4.12% 175,858 6,358 3.61%Debt fund . . . . . . . . . . . . . . . . . . . . . 8,978 530 5.90% — — —Interest rate swaps . . . . . . . . . . . . . . . — 195 — — 5,201 —

Total interest-bearing liabilities . . . . . $1,586,967 74,136 4.67% $1,321,334 57,943 4.37%

Net interest income . . . . . . . . . . . . . . . $ 62,390 $ 51,679

(1) Based on UPB for loans, amortized cost for securities and principal amount for debt.

(2) Weighted average yield calculated based on annualized interest income or expense divided byaverage carrying value.

Net Interest Income

The increase in interest income is comprised of $26.9 million from our Structured Business and$13.1 million from our Agency Business. The $26.9 million, or 25%, increase from our StructuredBusiness was primarily due to a 16% increase in our average core interest-earning assets, as a result ofloan originations exceeding loan payoffs, and a 7% increase in the average yield on core interest-earning assets, largely due to increases in the average LIBOR rate and acceleration fees from earlyrunoff. The increase in our Agency Business is due to the full period impact in 2017 of the Acquisitioncompleted in the third quarter of 2016.

Other interest income, net was $2.5 million in 2016. During 2015, we acquired a $116.0 milliondefaulted first mortgage at par, which paid off during 2015. In 2016, additional funds held in escrowfrom the note payoff were released following an arbitration proceeding and we recognized net otherinterest income totaling $2.5 million.

The increase in interest expense is comprised of $16.2 million from our Structured Business,$8.2 million from our Agency Business and $2.1 million from the seller financing entered into inconnection with the Acquisition. The $16.2 million, or 28%, increase from our Structured Business was

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primarily due to a 20% increase in the average balance of our interest-bearing liabilities and a7% increase in the average cost of our interest-bearing liabilities. The increase in the average debtbalance was due to growth in our loan portfolio, resulting in the issuance of our convertible seniorunsecured notes, CLOs and a Debt Fund. The increase in the average cost of our interest-bearingliabilities was primarily due to an increase in the average LIBOR rate, partially offset by the runoff ofswaps in the first quarter of 2017. The increases from our Agency Business and seller financing are dueto the full period impact in 2017 of the Acquisition.

Agency Business Revenue

The increase in gain on sales, including fee-based services was primarily due to a $3.32 billionincrease in loan sales, as a result of the full period impact in 2017 of the Acquisition, as well as loansoriginated late in 2016 that sold in 2017, partially offset by a 14 basis point decrease in the sales margin(gain on sales, including fee-based services, net as a percentage of loan sales volume) from 1.65% to1.51% in 2017, primarily due to an increase in larger Fannie Mae loans originated in 2017 whichgenerally yield a lower sales margin.

The increase in income from MSRs was primarily due to a $2.21 billion increase in loancommitment volume, primarily a result of the full period impact in 2017 of the Acquisition. Thisincrease was partially offset by a 34 basis point decrease in the MSR rate (income from MSRs as apercentage of loan commitment volume) from 2.11% to 1.77% in 2017, primarily due to an increase inthe percentage of Freddie Mac SBL loans commitment volume in 2017, which carry lower servicingfees.

The increase in servicing revenue was primarily due to an increase in our servicing portfolio andthe full period impact in 2017 of the Acquisition. Our servicing portfolio increased 20% from$13.56 billion at December 31, 2016 to $16.21 billion at December 31, 2017. Our servicing revenue, netin 2017 and 2016 includes $47.2 million and $21.7 million of amortization expense, respectively.

Other Expenses

The increase in employee compensation and benefits expense is comprised of $48.8 million fromour Agency Business and $4.7 million from our Structured Business. The increase in our AgencyBusiness was primarily due to the full period impact in 2017 of the Acquisition, an increase incommissions and headcount as a result of portfolio growth and compensation expense recorded directlyby the Agency Business, which was previously charged through the management fee prior to theinternalization of our management team and termination of our existing management agreement withour Former Manager effective May 31, 2017. The $4.7 million, or 31%, increase from our StructuredBusiness was primarily associated with the employees that transferred to us as a result of theinternalization of our management team and termination of the existing management agreement.

The increase in selling and administrative expenses is comprised of $11.1 million from our AgencyBusiness and $2.1 million from our Structured Business. The increase in our Agency Business isprimarily due to the full period impact in 2017 of the Acquisition. The $2.1 million, or 21%, increasefrom our Structured Business was primarily due to an increase in professional fees, as well as rentexpense that was recorded directly by the Structured Business, which was previously charged throughthe management fee prior to the Acquisition, as the lease contracts were assumed in connection withthe Acquisition.

Acquisition costs in 2016 represent costs incurred related to the Acquisition, which was completedin July 2016.

The increase in depreciation and amortization is comprised of $3.0 million from our AgencyBusiness partially offset by a $0.7 million decrease from our Structured Business. The increase in ourAgency Business is due to the full period impact in 2017 of the amortization of intangibles related tothe Acquisition.

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Impairment loss on real estate owned was $3.2 million and $11.2 million in 2017 and 2016,respectively. During 2016, we determined that our hotel property exhibited indicators of impairmentand, as a result, we recorded an impairment loss. The impairment loss in 2017 primarily relates to afurther impairment of $2.7 million on this property resulting from additional market analyses received.

The decrease in our provision for loss sharing was primarily related to a $3.3 million reversal of aspecific reserve related to a Fannie Mae DUS loan that settled with no loss share in our AgencyBusiness, partially offset by the full period impact in 2017 of the Acquisition.

The decrease in management fee—related party was due to the internalization of our managementteam and termination of the existing management agreement with our Former Manager effectiveMay 31, 2017.

Gain on Extinguishment of Debt

During 2017, we purchased, at a discount, certain of our junior subordinated notes with a carryingvalue of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million.

Gain on Sale of Real Estate

During 2016, we sold three multifamily properties and a hotel property for $50.7 million andrecognized a gain of $11.6 million.

(Loss) Income from Equity Affiliates

Loss from equity affiliates was $3.0 million in 2017 comprised primarily of a $5.5 million chargefor our proportionate share of a litigation settlement and a $1.7 million loss incurred from ourinvestment in a residential mortgage banking business, partially offset by distributions from other equityinvestments totaling $4.0 million. We recognized income from equity affiliates of $13.0 million in 2016comprised primarily of $10.0 million of income from our investment in a residential mortgage bankingbusiness and a $2.8 million distribution from one of our investments.

Provision for Income Taxes

Our 2017 results of operations included the impact of the enactment of the Tax Reform, which wassigned into law on December 22, 2017. Among numerous provisions included in the new tax law wasthe reduction of the corporate federal income tax rate from 35% to 21%. The provision for incometaxes for 2017 includes the newly enacted corporate federal income tax rate of 21% resulting inapproximately a $5.3 million deferred income tax benefit, which is reflected in the consolidatedstatements of income. The deferred income tax benefit was primarily the result of applying the newlower income tax rates to our net long-term deferred tax assets and liabilities recorded on ourconsolidated balance sheets.

The provision for income taxes was $13.4 million for 2017, which consisted of a current provisionof $20.8 million and a deferred benefit of $7.4 million. The deferred tax benefit includes the effect ofthe reduction in the newly enacted corporate federal income tax rate on our Agency Business. Theprovision for income taxes primarily represents federal and state taxes related to the Agency Business,which was acquired by the TRS Consolidated Group in July 2016.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the 21,230,769 OP Units issued to satisfy a portion of theaggregate purchase price of the Acquisition, which represented approximately 25.6% of our outstandingstock at December 31, 2017. The OP Units are redeemable for cash, or at our option, for shares of ourcommon stock on a one-for-one basis.

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Liquidity and Capital Resources

Sources of Liquidity. Liquidity is a measure of our ability to meet our potential cash requirements,including ongoing commitments to repay borrowings, satisfaction of collateral requirements under theFannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of FreddieMac’s SBL program, operational liquidity requirements of the GSE agencies, fund new loans andinvestments, fund operating costs and distributions to our stockholders, as well as other generalbusiness needs. Our primary sources of funds for liquidity consist of proceeds from equity and debtofferings, debt facilities and cash flows from our operations. We closely monitor our liquidity positionand believe our existing sources of funds and access to additional liquidity will be adequate to meet ourliquidity needs.

While we have been successful in obtaining proceeds from debt and equity offerings, CLOs andcertain financing facilities, current conditions in the capital and credit markets have and may continueto make certain forms of financing less attractive and, in certain cases, less available. Therefore, we willcontinue to rely, in part, on cash flows provided by operating and investing activities for workingcapital.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annuallyat least 90% of our REIT-taxable income. These distribution requirements limit our ability to retainearnings and thereby replenish or increase capital for operations. However, we believe that our capitalresources and access to financing will provide us with financial flexibility and market responsiveness atlevels sufficient to meet current and anticipated capital requirements.

Cash Flows. Cash flows used in operating activities totaled $37.7 million during 2018 andconsisted primarily of net cash outflows of $180.8 million, as a result of loan originations exceedingloan sales in our Agency Business, partially offset by consolidated net income of $148.1 million.

Cash flows used in investing activities totaled $681.9 million during 2018. Loan and investmentactivity (originations and payoffs/paydowns) comprise the bulk of our investing activities. Loanoriginations from our Structured Business totaling $1.55 billion, net of payoffs and paydowns of$960.8 million, resulted in net cash outflows of $584.7 million. Cash used in investing activities alsoincluded $65.2 million to fund holdbacks and reserves on our loans and investments and $47.5 millionto purchase B Piece bonds from SBL program securitizations.

Cash flows provided by financing activities totaled $816.5 million during 2018, and consistedprimarily of $830.5 million of net proceeds from the issuances of a CLO and unsecured notes, net cashinflows of $607.2 million from debt facility activities (funded loan originations were greater than facilitypaydowns) and $156.4 million of net proceeds from issuances of our common stock. These cash inflowswere partially offset by outflows of $593.9 million for the redemption of a CLO and certain unsecurednotes, $96.3 million distributed to our stockholders and OP Unit holders and $50.0 million for fullsatisfaction of the seller financing related to the Acquisition of the Agency Business.

Agency Business Requirements. The Agency Business is subject to supervision by certain regulatoryagencies. Among other things, these agencies require us to meet certain minimum net worth,operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations andcompliance with reporting requirements. Our adjusted net worth and operational liquidity exceeded theagencies’ requirements as of December 31, 2018. Our restricted liquidity and purchase and lossobligations were satisfied with letters of credit totaling $49.0 million. See Note 15—Commitments andContingencies for details about our performance regarding these requirements.

We also enter into contractual commitments with borrowers providing rate lock commitments whilesimultaneously entering into forward sale commitments with investors. These commitments areoutstanding for short periods of time (generally less than 60 days) and are described in Note 13—Derivative Financial Instruments and Note 14—Fair Value.

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Debt Facilities. We maintain various forms of short-term and long-term financing arrangements.Borrowings underlying these arrangements are primarily secured by a significant amount of our loansand investments and all of our loans held-for-sale. The following is a summary of our debt facilities (inthousands):

December 31, 2018Maturity

Debt Facilities Commitment(1) UPB(2) Available Dates

Structured BusinessCredit facilities and repurchase agreements . . . . $1,000,903 $ 665,844 $ 335,059 2019 - 2021Collateralized loan obligations(3) . . . . . . . . . . . 1,609,524 1,609,524 — 2019 - 2023Debt fund(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 70,000 — 2020 - 2023Senior unsecured notes . . . . . . . . . . . . . . . . . . 125,000 125,000 — 2023Convertible senior unsecured notes . . . . . . . . . . 270,057 270,057 — 2019 - 2021Junior subordinated notes . . . . . . . . . . . . . . . . 154,336 154,336 — 2034 - 2037Structured Business total . . . . . . . . . . . . . . . . . 3,229,820 2,894,761 335,059

Agency BusinessCredit facilities(4) . . . . . . . . . . . . . . . . . . . . . . 1,800,000 472,291 1,327,709 2019 - 2020Consolidated total . . . . . . . . . . . . . . . . . . . . . . $5,029,820 $3,367,052 $1,662,768

(1) Includes temporary increases to committed amounts which have not expired as of December 31,2018.

(2) Excludes the impact of deferred financing costs.

(3) Maturity dates represent the weighted average remaining maturity based on the underlyingcollateral as of December 31, 2018.

(4) The ASAP agreement we have with Fannie Mae has no expiration date.

These debt facilities, including their restrictive covenants, are described in Note 11—DebtObligations.

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Contractual Obligations. As of December 31, 2018, we had the following material contractualobligations (in thousands):

Payments Due by Period(1)Year Ending December 31,

Contractual Obligations 2019 2020 2021 2022 2023 Thereafter Totals

Credit facilities and repurchaseagreements . . . . . . . . . . . . . $586,257 $ 424,089 $ 9,678 $ — $ — $118,111 $1,138,135

Collateralized loanobligations(2) . . . . . . . . . . . 212,627 612,205 638,787 145,905 — — 1,609,524

Debt fund(3) . . . . . . . . . . . . . — 33,686 19,500 — 16,814 — 70,000Senior unsecured notes . . . . . . — — — — 125,000 — 125,000Convertible senior unsecured

notes . . . . . . . . . . . . . . . . . 90 5,467 264,500 — — — 270,057Junior subordinated notes(4) . . — — — — — 154,336 154,336Outstanding unfunded

commitments(5) . . . . . . . . . 60,460 44,029 23,536 2,605 292 — 130,922Operating leases(6) . . . . . . . . 5,468 5,210 2,953 2,703 2,051 4,764 23,149Totals . . . . . . . . . . . . . . . . . . $864,902 $1,124,686 $958,954 $151,213 $144,157 $277,211 $3,521,123

(1) Represents principal amounts due based on contractual maturities. Excludes the total projectedinterest payments on our debt obligations of $132.7 million in 2019, $105.7 million in 2020,$66.0 million in 2021, $29.0 million in 2022, $17.5 million in 2023 and $145.9 million thereafterbased on current LIBOR rates.

(2) Comprised of debt totaling $250.3 million for CLO VI, $279.0 million for CLO VII, $282.9 millionfor CLO VIII, $356.4 million for CLO IX and $441.0 million for CLO X with a weighted averagecontractual maturity of 2.35 years, 2.02 years, 2.10 years, 1.65 years and 2.20 years, respectively, asof December 31, 2018.

(3) The weighted average contractual maturity of the underlying loans is 2.69 years.

(4) Represents the face amount due upon maturity. The carrying value is $140.3 million, which is netof a deferred amount of $12.0 million and deferred financing fees of $2.1 million at December 31,2018.

(5) In accordance with certain loans and investments, we have outstanding unfunded commitmentsthat we are obligated to fund as the borrowers meet certain requirements. Specific requirementsinclude, but are not limited to, property renovations, building construction and buildingconversions based on criteria met by the borrower in accordance with the loan agreements. Thepayment due by period is based on the maturity date of underlying loans and is included in loansand investments, net in the consolidated balance sheet.

(6) Represents the operating lease payments due in connection with our lease of office space andequipment for our corporate headquarters and loan origination, support and servicing officeslocated throughout the U.S. Certain of the office leases have escalation clauses. The total rentexpense was $5.4 million and $4.7 million in 2018 and 2017, respectively.

Off-Balance-Sheet Arrangements. At December 31, 2018, we had no off-balance-sheetarrangements.

Inflation. Changes in the general level of interest rates prevailing in the economy in response tochanges in the rate of inflation generally have little effect on our income because the majority of our

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interest-earning assets and interest-bearing liabilities have floating rates of interest. See ‘‘Quantitativeand Qualitative Disclosures about Market Risk’’ below.

Derivative Financial Instruments

We enter into derivative financial instruments in the normal course of business through theorigination and sale of mortgage loans and the management of potential loss exposure caused byfluctuations of interest rates. See Note 13—Derivative Financial Instruments for details surrounding ourderivative financial instruments.

Significant Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is basedupon our consolidated financial statements, which have been prepared in accordance with the FASBAccounting Standards Codification!, the authoritative reference for accounting principles generallyaccepted in the U.S. (‘‘GAAP’’). The preparation of financial statements in conformity with GAAPrequires the use of estimates and assumptions that could affect the reported amounts in ourconsolidated financial statements. Actual results could differ from these estimates.

A summary of our significant accounting policies is presented in Note 2—Basis of Presentation andSignificant Accounting Policies. Many of these accounting policies require judgment and the use ofestimates and assumptions when applying these policies in the preparation of our consolidated financialstatements. Each quarter, we assess these estimates and assumptions based on several factors, includinghistorical experience, which we believe to be reasonable under the circumstances. These estimates aresubject to change in the future if any of the underlying assumptions or factors change.

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from Operations. We present funds from operations(‘‘FFO’’) and adjusted funds from operations (‘‘AFFO’’) because we believe they are importantsupplemental measures of our operating performance in that they are frequently used by analysts,investors and other parties in the evaluation of REITs. The National Association of Real EstateInvestment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders(computed in accordance with GAAP), excluding gains (losses) from sales of depreciated realproperties, plus impairments of depreciated real properties and real estate related depreciation andamortization, and after adjustments for unconsolidated ventures.

We define AFFO as funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from MSRs, changes in fair value of certain derivatives thattemporarily flow through earnings, amortization and write-offs of MSRs, deferred tax benefit andamortization of convertible senior notes conversion options. We also add back one-time charges such asacquisition costs and impairment losses on real estate and gains on sales of real estate. We aregenerally not in the business of operating real estate property and had obtained real estate byforeclosure or through partial or full settlement of mortgage debt related to our loans to maximize thevalue of the collateral and minimize our exposure. Therefore, we deem such impairment and gains onreal estate as an extension of the asset management of our loans, thus a recovery of principal oradditional loss on our initial investment.

FFO and AFFO are not intended to be an indication of our cash flow from operating activities(determined in accordance with GAAP) or a measure of our liquidity, nor is it entirely indicative offunding our cash needs, including our ability to make cash distributions. Our calculation of FFO andAFFO may be different from the calculations used by other companies and, therefore, comparabilitymay be limited.

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FFO and AFFO are as follows ($ in thousands, except share and per share data):

Year Ended December 31,2018 2017 2016

Net income attributable to common stockholders . . . . . . . . . $ 108,312 $ 65,835 $ 42,796Adjustments:

Net income attributable to noncontrolling interest . . . . . . . 32,185 24,120 12,131Impairment loss on real estate owned . . . . . . . . . . . . . . . . 2,000 3,200 11,200Depreciation—real estate owned . . . . . . . . . . . . . . . . . . . 708 769 2,012Depreciation—investments in equity affiliates . . . . . . . . . . 499 406 375Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . — — (11,631)

Funds from operations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,704 $ 94,330 $ 56,883Adjustments:

Income from mortgage servicing rights . . . . . . . . . . . . . . . (98,839) (76,820) (44,941)Impairment loss on real estate owned . . . . . . . . . . . . . . . . (2,000) (3,200) (11,200)Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,033) (7,399) (1,532)Amortization and write-offs of MSRs . . . . . . . . . . . . . . . . 73,182 63,034 21,704Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 9,618 7,697 3,170Net (gain) loss on changes in fair value of derivatives . . . . (6,672) 1,398 (499)Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . — — 11,631Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . 6,095 4,840 3,514Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10,262

Adjusted funds from operations(1) . . . . . . . . . . . . . . . . . . . . $ 113,055 $ 83,880 $ 48,992

Diluted FFO per share(1) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.53 $ 1.17 $ 0.92

Diluted AFFO per share(1) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.21 $ 1.04 $ 0.79

Diluted weighted average shares outstanding(1) . . . . . . . . . . 93,642,168 80,311,252 61,649,847

(1) Amounts are attributable to common stockholders and OP Units holders. The OP Units areredeemable for cash, or at our option for shares of our common stock on a one-for-one basis.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to loss due to factors that affect the overall performance of thefinancial markets such as changes in interest rates, availability of capital, equity prices, real estatevalues and credit ratings. The primary market risks that we are exposed to are capital markets risk, realestate values, credit risk and interest rate risk.

Capital Markets Risk. We are exposed to the risks related to the equity and debt capital marketsand our ability to raise capital or finance our business operations through these markets. As a REIT,we are required to distribute at least 90% of our taxable income annually, which significantly limits ourability to accumulate operating cash flow and, therefore, requires us to utilize the equity and debtcapital markets to finance our business. To mitigate this risk, we monitor both the equity and debtcapital markets to make informed decisions on the amount, timing, type and terms of the capital weraise.

Real Estate Values and Credit Risk. Commercial mortgage assets may be viewed as exposing aninvestor to greater risk of loss than residential mortgage assets since such assets are typically secured bylarger loans to fewer obligors than residential mortgage assets. Multifamily and commercial propertyvalues, net operating income derived from such properties, and borrowers’ credit ratings are subject to

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volatility and may be negatively affected by a number of factors, including, but not limited to, eventssuch as natural disasters, acts of war, terrorism, local economic and/or real estate conditions (such asindustry slowdowns, oversupply of real estate space, occupancy rates, construction delays and costs) andother macroeconomic factors beyond our control. The performance and value of our loan andinvestment and servicing portfolios depend on the borrowers’ ability to operate the properties thatserve as collateral so that they produce adequate cash flow to pay their loans. We attempt to mitigatethese risks through our underwriting and asset management processes. Our asset management teamreviews our portfolios consistently and is in regular contact with borrowers to monitor the performanceof the collateral and enforce our rights as necessary.

Interest Rate Risk. Interest rate risk is highly sensitive to many factors, including governmentalmonetary and tax policies, domestic and international economic and political considerations and otherfactors beyond our control.

The operating results of our Structured Business depend in large part on differences between theincome from our loans and our borrowing costs. Most of our Structured Business loans and borrowingsare variable-rate instruments, based on LIBOR. The objective of this strategy is to minimize the impactof interest rate changes on our net interest income. We also have various fixed rate loans in ourportfolio that are financed with variable rate LIBOR borrowings. Additionally, loans are sometimesextended and, consequently, do not pay off on their original maturity dates. If a loan is extended, ourexposure to interest rate risk may be increased. In these instances, we could have a fixed rate loanfinanced with variable debt with no corresponding hedge, which may result in debt which isunprotected from interest rate risk. Some of our loans and borrowings are subject to interest ratefloors. As a result, the impact of a change in interest rates may be different on our interest incomethan on our interest expense. We have utilized interest rate swaps in the past to limit interest rate risk.Derivatives are used for hedging purposes rather than speculation. We do not enter into financialinstruments for trading purposes.

The following table projects the potential impact on interest income and interest expense for a12-month period, assuming an instantaneous increase or decrease of both 25 and 50 basis points inLIBOR (in thousands).

Assets (Liabilities) 25 Basis 25 Basis 50 Basis 50 BasisSubject to Interest Point Point Point PointRate Sensitivity(1) Increase Decrease(2) Increase Decrease(2)

Interest income from loans andinvestments . . . . . . . . . . . . . . . . . . . . . $ 3,283,342 $7,203 $(6,738) $14,418 $(12,732)

Interest expense from debt obligations . . . (2,894,761) 6,242 (6,242) 12,484 (12,484)Total net interest income . . . . . . . . . . . . . $ 961 $ (496) $ 1,934 $ (248)

(1) Represents the UPB of our loan portfolio and the principal balance of our debt.

(2) The quoted one-month LIBOR rate was 2.50% as of December 31, 2018.

In the event of a significant rising interest rate environment and/or economic downturn, defaultscould increase and result in credit losses to us, which could adversely affect our liquidity and operatingresults. Further, such delinquencies or defaults could have an adverse effect on the spreads betweeninterest-earning assets and interest-bearing liabilities.

Our Agency Business originates, sells and services a range of multifamily finance products withFannie Mae, Freddie Mac and HUD. Our loans held-for-sale to Fannie Mae, Freddie Mac and HUDare not currently exposed to interest rate risk during the loan commitment, closing and deliveryprocess. The sale or placement of each loan to an investor is negotiated prior to closing on the loan

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with the borrower, and the sale or placement is generally effectuated within 60 days of closing. Thecoupon rate for the loan is set after we established the interest rate with the investor.

In addition, the fair value of our MSRs is subject to market risk since a significant driver of thefair value of these assets is the discount rates. A 100 basis point increase in the weighted averagediscount rate would decrease the fair value of our MSRs by approximately $10.8 million as ofDecember 31, 2018, while a 100 basis point decrease would increase the fair value by approximately$11.4 million.

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Item 8. Financial Statements and Supplementary Data

Page

Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Schedule IV—Loans and Other Lending Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

All other schedules are omitted because they are not applicable or the required information isshown in the consolidated financial statements or notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ofArbor Realty Trust, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arbor Realty Trust, Inc. andSubsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements ofincome, comprehensive income, changes in equity and cash flows for each of the three years in theperiod ended December 31, 2018, and the related notes and financial statement schedule listed in theIndex at Item 15(a) (collectively referred to as the ‘‘consolidated financial statements’’). In our opinion,based on our audits and the report of other auditors, the consolidated financial statements presentfairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017,and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2018, in conformity with U.S. generally accepted accounting principles.

We did not audit the 2016 financial statements of Cardinal Financial Company, LimitedPartnership, an entity in which the Company has a 16.3% interest as of December 31, 2016. In theconsolidated financial statements, the Company’s equity in the net income of Cardinal FinancialCompany, Limited Partnership is stated at $9,487,795 in 2016. Those statements were audited by otherauditors whose report has been furnished to us, and our opinion, insofar as it relates to the amountsincluded for Cardinal Financial Company, Limited Partnership, is based solely on the report of theother auditors.

We also have audited, in accordance with the standards of the Public Company AccountingOversight Board (United States) (PCAOB), the Company’s internal control over financial reporting asof December 31, 2018, based on criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and ourreport dated February 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibilityis to express an opinion on the Company’s financial statements based on our audits. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the financial statements. We believe thatour audits and the report of other auditors provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2003.

New York, New YorkFebruary 15, 2019

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Report of Independent Registered Public Accounting Firm

To the PartnersCardinal Financial Company, Limited PartnershipCharlotte, North Carolina

We have audited the balance sheet of Cardinal Financial Company, Limited Partnership (the‘‘Company’’) as of December 31, 2016, and the related statements of operations, changes in partners’equity, and cash flows for the year then ended (not presented separately herein). These financialstatements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States) and in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of Cardinal Financial Company, Limited Partnership as of December 31, 2016,and the results of its operations and its cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States of America.

/s/ Richey, May & Co., LLPEnglewood, Colorado

February 13, 2017

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share and per share data)

December 31,2018 2017

Assets:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,063 $ 104,374Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,606 139,398Loans and investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200,145 2,579,127Loans held-for-sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481,664 297,443Capitalized mortgage servicing rights, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,770 252,608Securities held-to-maturity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,363 27,837Investments in equity affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,580 23,653Real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,446 16,787Due from related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,287 688Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,165 121,766Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,086 62,264Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,612,175 $3,625,945

Liabilities and Equity:Credit facilities and repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,135,627 $ 528,573Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,593,548 1,418,422Debt fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,183 68,084Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,484 95,280Convertible senior unsecured notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,768 231,287Junior subordinated notes to subsidiary trust issuing preferred securities . . . . . . . . . . . . . . . 140,259 139,590Related party financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 50,000Due to borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,662 99,829Allowance for loss-sharing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,298 30,511Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,780 99,813Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,546,609 2,761,389Commitments and contingencies (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity:Arbor Realty Trust, Inc. stockholders’ equity:

Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized;special voting preferred shares; 20,653,584 and 21,230,769 shares issued and outstanding,respectively; 8.25% Series A, $38,788 aggregate liquidation preference; 1,551,500 sharesissued and outstanding; 7.75% Series B, $31,500 aggregate liquidation preference;1,260,000 shares issued and outstanding; 8.50% Series C, $22,500 aggregate liquidationpreference; 900,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 89,502 89,508

Common stock, $0.01 par value: 500,000,000 shares authorized; 83,987,707 and 61,723,387shares issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840 617

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879,029 707,450Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,133) (101,926)Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 176

Total Arbor Realty Trust, Inc. stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895,238 695,825Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,328 168,731Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,065,566 864,556Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,612,175 $3,625,945

Note: Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs, aswe are the primary beneficiary of these VIEs. As of December 31, 2018 and 2017, assets of our consolidated VIEs totaled$2,198,096 and $1,989,491, respectively, and the liabilities of our consolidated VIEs totaled $1,665,139 and $1,488,552,respectively. Refer to Note 16—Variable Interest Entities for discussion of our VIEs.

See Notes to Consolidated Financial Statements.

65

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except share and per share data)

Year Ended December 31,2018 2017 2016

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251,768 $ 156,177 $ 116,173Other interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 2,539Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,818 90,072 63,623

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,950 66,105 55,089Other revenue:Gain on sales, including fee-based services, net . . . . . . . . . . . . . . 70,002 72,799 24,594Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,839 76,820 44,941Servicing revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,034 29,210 9,054Property operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,095 10,973 14,881Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,161 685 1,041

Total other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,131 190,487 94,511Other expenses:Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . 110,470 92,126 38,647Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,074 30,738 17,587Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10,262Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,431 10,482 13,501Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 7,453 7,385 5,022Impairment loss on real estate owned . . . . . . . . . . . . . . . . . . . . 2,000 3,200 11,200Provision for loss sharing (net of recoveries) . . . . . . . . . . . . . . . 3,843 (259) 2,235Provision for loan losses (net of recoveries) . . . . . . . . . . . . . . . . 8,353 (456) (134)Litigation settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,170) — —Management fee—related party . . . . . . . . . . . . . . . . . . . . . . . . . — 6,673 12,600

Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,454 149,889 110,920Income before extinguishment of debt, sale of real estate, income

from equity affiliates and income taxes . . . . . . . . . . . . . . . . . . 161,627 106,703 38,680(Loss) gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . . (5,041) 7,116 —Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 11,631Income (loss) from equity affiliates . . . . . . . . . . . . . . . . . . . . . . 1,196 (2,951) 12,995Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,731) (13,359) (825)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,051 97,509 62,481Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,554 7,554 7,554Net income attributable to noncontrolling interest . . . . . . . . . . . 32,185 24,120 12,131Net income attributable to common stockholders . . . . . . . . . . . . $ 108,312 $ 65,835 $ 42,796

Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . $ 1.54 $ 1.14 $ 0.83

Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 1.12 $ 0.83

Weighted average shares outstanding:Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,208,165 57,890,574 51,305,095

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,642,168 80,311,252 51,730,553

See Notes to Consolidated Financial Statements.

66

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Year Ended December 31,2018 2017 2016

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,051 $97,509 $62,481Reclassification of net unrealized gains on available-for-sale securities

into accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (176) — —Unrealized (loss) gain on securities available-for-sale, at fair value . . . . — (382) 147Unrealized loss on derivative financial instruments, net . . . . . . . . . . . . . — — (193)Reclassification of net realized loss on derivatives designated as cash

flow hedges into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 237 5,208Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,875 97,364 67,643Less:Comprehensive income attributable to noncontrolling interest . . . . . . . . 32,142 24,091 12,883Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,554 7,554 7,554Comprehensive income attributable to common stockholders . . . . . . . . $108,179 $65,719 $47,206

See Notes to Consolidated Financial Statements.

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.

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,2018 2017 2016

Operating activities:Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,051 $ 97,509 $ 62,481Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,453 7,385 5,022Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,095 4,840 3,514Amortization and accretion of interest and fees, net . . . . . . . . . . . . . . . . . . . . . . . . . . 9,291 4,682 4,563Amortization of capitalized mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . 48,124 47,202 21,705Impairment loss on real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 3,200 11,200Originations of loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,074,662) (4,444,939) (2,154,732)Proceeds from sales of loans held-for-sale, net of gain on sale . . . . . . . . . . . . . . . . . . . . 4,893,886 4,814,906 1,916,470Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,839) (76,820) (44,941)Write-off of capitalized mortgage servicing rights from payoffs . . . . . . . . . . . . . . . . . . . . 25,058 15,832 5,796Provision for loan losses (net of recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,353 (456) (134)Provision for loss sharing (net of recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,843 (259) 2,235Net charge-offs for loss sharing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) (1,638) (2,444)Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,033) (7,399) —(Income) loss from equity affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,196) 2,951 (12,995)Loss (gain) on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,041 (7,116) —Payoffs and paydowns of loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 132 —Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (11,631)Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,205) (308) (4,624)

Net cash (used in) provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,735) 459,704 (198,515)Investing Activities:

Loans and investments funded, originated and purchased, net . . . . . . . . . . . . . . . . . . . . (1,545,499) (1,867,393) (870,166)Payoffs and paydowns of loans and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960,769 959,696 667,902Internalization of management team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (25,000) —Acquisition of the Agency Business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . — — (63,356)Deferred fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,114 10,982 11,938Investments in real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (367) (672) (588)Contributions to equity affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,493) (693) (6,091)Distributions from equity affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,122 4,671 12,452Proceeds from sale of real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 49,030Proceeds from sale of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,567Due to borrowers and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65,213) 38,372 395Purchases of securities held-to-maturity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,499) (27,173) —Payoffs and paydowns of securities held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . 2,269 460 —Purchases of capitalized mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,199) —(Distributions of) proceeds from insurance settlements, net . . . . . . . . . . . . . . . . . . . . . . (78) 1,104 —

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (681,875) (906,845) (196,917)Financing activities:

Proceeds from repurchase agreements, credit facilities and notes payable . . . . . . . . . . . . . . 9,166,255 8,215,669 3,922,394Paydowns and payoffs of repurchase agreements and credit facilities . . . . . . . . . . . . . . . . (8,559,057) (8,593,411) (3,571,929)Proceeds from issuance of collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . 441,000 918,274 250,250Payoffs and paydowns of collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . . (267,750) (219,000) (281,250)Proceeds from issuance of convertible senior unsecured notes . . . . . . . . . . . . . . . . . . . . 264,500 157,500 86,250Extinguishment of convertible senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . (228,287) — —Proceeds from issuance of senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 — —Payoffs of senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (97,860) — —Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,417 76,225 —Distribution for repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,066) — —Redemption of operating partnership units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,845) — —Distributions paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68,083) (42,612) (31,798)Distributions paid on noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,650) (15,286) (6,794)Distributions paid on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,554) (7,554) (7,554)Distributions paid on preferred stock of private REIT . . . . . . . . . . . . . . . . . . . . . . . . . (14) (15) (15)Payoffs of related party financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) — —Payment of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,499) (24,576) (10,617)Proceeds from debt fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 70,000 —Payoffs of junior subordinated notes to subsidiary trust issuing preferred securities . . . . . . . . — (12,691) —Receipts on swaps and returns of margin calls from counterparties . . . . . . . . . . . . . . . . . — 430 4,600Paydowns and payoffs of mortgage note payable—real estate owned . . . . . . . . . . . . . . . . . — — (27,155)

Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816,507 522,953 326,382Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . 96,897 75,812 (69,050)Cash, cash equivalents and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . . 243,772 167,960 237,010Cash, cash equivalents and restricted cash at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 340,669 $ 243,772 $ 167,960

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

Year Ended December 31,2018 2017 2016

Supplemental cash flow information:

Cash used to pay interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,923 $75,582 $ 53,012

Cash used to pay taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,026 $20,823 $ 264

Supplemental schedule of non-cash investing and financing activities:

Issuance of common stock from convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,118 $ — $ —

Extinguishment of convertible senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . $ (70,271) $ — $ —

Distributions accrued for special dividend declared . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,696 $ — $ —

Fair value of conversion feature of convertible senior unsecured notes . . . . . . . . . . . . . . . $ 9,750 $ 4,703 $ 2,280

Distributions accrued on 8.25% Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . $ 267 $ 267 $ 267

Distributions accrued on 7.75% Series B preferred stock . . . . . . . . . . . . . . . . . . . . . . . $ 203 $ 203 $ 203

Distributions accrued on 8.50% Series C preferred stock . . . . . . . . . . . . . . . . . . . . . . . $ 159 $ 159 $ 159

Issuance of special voting preferred shares and operating partnership units in connectionwith the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $154,772

Related party financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ 50,000

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

Note 1—Description of Business

Arbor is a Maryland corporation formed in 2003. Through our Structured Business, we invest in adiversified portfolio of structured finance assets in the multifamily and commercial real estate markets,primarily consisting of bridge and mezzanine loans, including junior participating interests in firstmortgages, preferred and direct equity. We may also directly acquire real property and invest in realestate-related notes and certain mortgage-related securities. Through our Agency Business, weoriginate, sell and service a range of multifamily finance products through Fannie Mae, Freddie Mac,Ginnie Mae, FHA, HUD and CMBS programs. We retain the servicing rights and asset managementresponsibilities on substantially all loans we originate and sell under the GSE and HUD programs. Weare an approved Fannie Mae DUS lender nationally, a Freddie Mac Multifamily Conventional Loanlender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable,manufactured housing, senior housing and SBL lender, seller/servicer, nationally and a HUD MAP andLEAN senior housing/healthcare lender nationally.

Substantially all of our operations are conducted through our operating partnership, ARLP, forwhich we serve as the general partner, and ARLP’s subsidiaries. We are organized to qualify as a REITfor federal income tax purposes. See Note 18—Income Taxes for details.

In July 2016, we acquired the Agency platform of ACM and in May 2017, we terminated ourexisting management agreement with ACM and internalized our management team.

Note 2—Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The consolidated financial statements and accompanying notes have been prepared in accordancewith GAAP. In the opinion of management, all adjustments considered necessary for a fair presentationof our financial position, results of operations and cash flows have been included and are of a normaland recurring nature.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation.See the following ‘‘Recently Adopted Accounting Pronouncements’’ section below for the cash flowsimpact of the retrospective adoption of Accounting Standards Update (‘‘ASU’’) 2016-18, Statement ofCash Flows: Restricted Cash and ASU 2016-15, Statement of Cash Flows.

Principles of Consolidation

The consolidated financial statements include our financial statements and the financial statementsof our wholly owned subsidiaries, partnerships and other joint ventures in which we own a controllinginterest, including variable interest entities (‘‘VIEs’’) of which we are the primary beneficiary. Entitiesin which we have a significant influence are accounted for under the equity method. See Note 16—Variable Interest Entities for information about our VIEs. All significant inter-company transactionsand balances have been eliminated in consolidation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions that could materially affect the amounts reported inthe consolidated financial statements and accompanying notes. As future events cannot be determinedwith precision, actual results could differ from those estimates.

Significant Accounting Policies

Cash and Cash Equivalents. All highly liquid investments with original maturities of three monthsor less are considered to be cash equivalents. We place our cash and cash equivalents in high qualityfinancial institutions. The consolidated account balances at each institution periodically exceed FederalDeposit Insurance Corporation (‘‘FDIC’’) insurance coverage and we believe that this risk is notsignificant.

Loans, Investments and Securities. Loans held for investment are intended to be held to maturityand, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchasediscounts, and net of the allowance for loan losses when such loan or investment is deemed to beimpaired. We invest in preferred equity interests that, in some cases, allow us to participate in apercentage of the underlying property’s cash flows from operations and proceeds from a sale orrefinancing. At the inception of each such investment, we determine whether such investment should beaccounted for as a loan, equity interest or as real estate. To date, we have determined that all suchinvestments are properly accounted for and reported as loans.

At the time of purchase, we designate a debt security as available-for-sale, held-to-maturity, ortrading depending on our ability and intent for the security. Securities available-for-sale, which areincluded as a component of other assets in the consolidated balance sheets, are reported at fair valuewith the net unrealized gains or losses and other-than-temporary impairments up to their creditcomponent recognized through earnings. Held-to-maturity securities are carried at cost net of anyunamortized premiums or discounts, which are amortized or accreted over the life of the securities. Forsecurities classified as held-to-maturity, an evaluation is performed as to whether a decline in fair valuebelow the amortized cost basis is other-than-temporary.

The determination of other-than-temporary impairment is a subjective process requiring judgmentsand assumptions and is not necessarily intended to indicate a permanent decline in value. The processincludes, but is not limited to, assessment of recent market events and prospects for near-termrecovery, assessment of cash flows, internal review of the underlying assets securing the investments,credit of the issuer and the rating of the security, as well as our ability and intent to hold theinvestment to maturity. We closely monitor market conditions on which we base such decisions.

Impaired Loans, Allowance for Loan Losses and Charge-offs. We consider a loan impaired when,based upon current information, it is probable that we will be unable to collect all amounts due forboth principal and interest according to the contractual terms of the loan agreement. We evaluate eachloan in our portfolio on a quarterly basis. Our loans are individually specific and unique as it relates toproduct type, geographic location, and collateral type, as well as to the rights and remedies and theposition in the capital structure our loans have in relation to the underlying collateral. We evaluate this

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

information at both a loan level and general market trends level when determining the appropriateassumptions such as capitalization and market discount rates, as well as the borrower’s operatingincome and cash flows, in estimating the value of the underlying collateral when determining if a loanis impaired. We utilize internally developed valuation models and techniques primarily consisting ofdiscounted cash flow and direct capitalization models in determining the fair value of the underlyingcollateral on an individual loan. We may also obtain a third party appraisal, which may value thecollateral through an ‘‘as-is’’ or ‘‘stabilized value’’ methodology. Such appraisals may be used as anadditional source of valuation information only and no adjustments are made to appraisals.

If upon completion of the valuation, the fair value of the underlying collateral securing theimpaired loan is less than the net carrying value of the loan, an allowance is created with acorresponding charge to the provision for loan losses. The allowance for each loan is maintained at alevel that we believe to be adequate to absorb probable losses.

Loan terms may be modified if we determine that, based on the individual circumstances of a loanand the underlying collateral, a modification would more likely increase the total recovery of thecombined principal and interest from the loan. Any loan modification is predicated upon a goal ofmaximizing the collection of the loan. Typical triggers for a modification would include situations wherethe projected cash flow is insufficient to cover required debt service, when asset performance is laggingthe initial projections, where there is a requirement for rebalancing, where there is an impendingmaturity of the loan, and where there is an actual loan default. Loan terms that have been modifiedhave included, but are not limited to, interest rate, maturity date and in certain cases, principal amount.Length and amounts of each modification have varied based on individual circumstances and aredetermined on a case by case basis. If the loan modification constitutes a concession whereas we do notreceive ample consideration in return for the modification, and the borrower is experiencing financialdifficulties and cannot repay the loan under the current terms, then the modification is considered byus to be a troubled debt restructuring. If we receive a benefit, either monetary or strategic, and theabove criteria are not met, the modification is not considered to be a troubled debt restructuring. Werecord interest on modified loans on an accrual basis to the extent the modified loan is contractuallycurrent.

Charge-offs to the allowance for loan losses occur when losses are confirmed through the receiptof cash or other consideration from the completion of a sale; when a modification or restructuringtakes place in which we grant a concession to a borrower or agree to a discount in full or partialsatisfaction of the loan; when we take ownership and control of the underlying collateral in fullsatisfaction of the loan; when loans are reclassified as other investments; or when significant collectionefforts have ceased and it is highly likely that a loss has been realized.

Loss on restructured loans is recorded when we have granted a concession to the borrower in theform of principal forgiveness related to the payoff or the substitution or addition of a new debtor forthe original borrower or when we incur costs on behalf of the borrower related to the modification,payoff or the substitution or addition of a new debtor for the original borrower. When a loan isrestructured, we record our investment at net realizable value, taking into account the cost of allconcessions at the date of restructuring. In addition, a gain or loss may be recorded upon the sale of aloan to a third party in the consolidated statements of income in the period in which the loan was sold.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

Loans Held-for-Sale, Net. Loans held-for-sale, net represents commercial real estate loansoriginated in our Agency Business, which are generally transferred or sold within 60 days from the datethe loan is funded. Such loans are reported at the lower of cost or market on an aggregate basis andinclude the value allocated to the associated future MSRs. During the period prior to its sale, interestincome on a loan held-for-sale is calculated in accordance with the terms of the individual loan and theloan origination fees and direct loan origination costs are deferred until the loan is sold. All of ourheld-for-sale loans are financed with matched borrowings from credit facilities contracted to financesuch loans. Interest income and expense are earned or incurred after a loan is closed and before a loanis sold.

Transfers of financial assets are accounted for as sales when control over the assets has beensurrendered. Control over transferred assets is deemed to be surrendered when (1) the assets havebeen isolated, put presumptively beyond the reach of the entity, even in bankruptcy, (2) the transferee(or if the transferee is an entity whose sole purpose is to engage in securitization and the entity isconstrained from pledging or exchanging the assets it receives, each third-party holder of its beneficialinterests) has the right to pledge or exchange the transferred financial assets, and (3) we or our agentsdoes not maintain effective control over the transferred financial assets or third-party beneficial interestrelated to those transferred assets through an agreement to repurchase them before their maturity. Wehave determined that all loans sold have met these specific conditions and account for all transfers ofmortgage loans as completed sales.

Allowance for Loss-Sharing Obligations. When a loan is sold under the Fannie Mae DUS program,we undertake an obligation to partially guarantee the performance of the loan. Generally, we areresponsible for losses equal to the first 5% of the UPB and a portion of any additional losses to anoverall maximum of 20% of the original principal balance. Fannie Mae bears any remaining loss. Inaddition, under the terms of the master loss-sharing agreement with Fannie Mae, we are responsiblefor funding 100% of mortgage delinquencies (principal and interest) and servicing advances (taxes,insurance and foreclosure costs) until the amounts advanced exceeds 5% of the UPB at the date ofdefault. Thereafter, we may request interim loss-sharing adjustments which allow us to fund 25% ofsuch advances until final settlement.

At inception, a liability for the fair value of the obligation undertaken in issuing the guaranty isrecognized. In determining the fair value of the guaranty obligation, we consider the risk profile of thecollateral and the historical loss experience in our portfolio. The guaranty obligation is removed onlyupon either the expiration or settlement of the guaranty.

We evaluate the allowance for loss-sharing obligations by monitoring the performance of eachloss-sharing loan for events or conditions that may signal a potential default. Historically, initial lossrecognition occurs at or before a loan becomes 60 days delinquent. In instances where payment underthe guaranty on a loan is determined to be probable and estimable (as the loan is probable of, or is, inforeclosure), we record a liability for the estimated allowance for loss-sharing (a ‘‘specific reserve’’) bytransferring the guarantee obligation recorded on the loan to the specific reserve with any adjustmentsto this reserve amount recorded in provision for loss sharing in the statements of income. The amountof the allowance considers our assessment of the likelihood of repayment by the borrower or keyprincipal(s), the risk characteristics of the loan, the loan’s risk rating, historical loss experience, adversesituations affecting individual loans, the estimated disposition value of the underlying collateral, and the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

level of risk sharing. We regularly monitor the specific reserves and update loss estimates as currentinformation is received.

Capitalized Mortgage Servicing Rights. We recognize, as separate assets, rights to service mortgageloans for others, including such rights from our origination of mortgage loans sold with the servicingrights retained, as well as rights associated with acquired MSRs. Income from MSRs related to loanswe originate are recognized when we record a derivative asset upon the commitment to originate aloan with a borrower and sell the loan to an investor. This commitment asset is recognized at fair valuebased on the discounted expected net cash flows associated with the servicing of the loan. When amortgage loan we originate is sold, we retain the right to service the loan and recognize the MSR atthe initial capitalized valuation. We amortize our MSRs using the amortization method, which requiresthe MSRs to be amortized over the period of estimated net servicing income or loss and that theservicing assets or liabilities be assessed for impairment, or increased obligation, based on the fair valueat each reporting date. Amortization of MSRs is recorded as a reduction of servicing revenues, net inthe consolidated statements of income. The following assumptions were used in calculating the fairvalue of our MSRs for the periods presented:

Key rates: We used discount rates ranging from 8% to 15%, representing a weighted averagediscount rate of 12%, based on our best estimate of market discount rates to determine the presentvalue of MSRs. The inflation rate used for adequate compensation was 3%.

Servicing Cost: A market participant’s estimated future cost to service the loan for the estimatedlife of the MSR is subtracted from the estimated future cash flows.

Estimated Life: We estimate the life of our MSRs based upon the stated yield maintenance and/orprepayment protection term of the underlying loan and are reduced using prepayment rates thatconsider the note rate of the loan and the expiration of various types of prepayment penalty and/orlockout provisions prior to that stated maturity date.

MSRs are initially recorded at fair value and are carried at amortized cost. The fair value of MRSsfrom loans we originate and sell are estimated considering market prices for similar MSRs, whenavailable, and by estimating the present value of the future net cash flows of the capitalized MSRs, netof adequate compensation for servicing. Adequate compensation is based on the market rate of similarservicing contracts. The fair value of MSRs acquired approximate the purchase price paid.

We evaluate the MSR portfolio for impairment on a quarterly basis based on the differencebetween the aggregate carrying amount of the MSRs and their aggregate fair value. We engage anindependent third-party valuation expert to assist in determining an estimated fair value of our MSRportfolio on a quarterly basis. For purposes of impairment evaluation, the MSRs are stratified based onpredominant risk characteristics of the underlying loans, which we have identified as loan type, noterate and yield maintenance provisions. To the extent that the carrying value of the MSRs exceeds fairvalue, a valuation allowance is established.

We record write-offs of MSRs related to loans that were repaid prior to their expected maturityand loans that have defaulted and determined to be unrecoverable. When this occurs, the write-off isrecorded as a direct write-down to the carrying value of MSRs and is included as a component ofservicing revenue, net in the consolidated statements of income. This direct write-down permanently

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

reduces the carrying value of the MSRs, precluding recognition of subsequent recoveries. For loans thatpayoff prior to maturity, we may collect a prepayment fee which is included as a component ofservicing revenue, net.

Real Estate Owned and Held-For-Sale. Real estate acquired is recorded at its estimated fair valueat acquisition and is shown net of accumulated depreciation and impairment charges. Costs incurred inconnection with the acquisition of a property are expensed as incurred.

We allocate the purchase price of our real estate acquisitions to land, building, tenantimprovements, origination asset of the in-place leases, intangibles for the value of any above or belowmarket leases at fair value and to any other identified intangible assets or liabilities. We finalize ourpurchase price allocation within one year of the acquisition. We amortize the value allocated to in-placeleases over the remaining lease term, which is reported in depreciation and amortization expense onour consolidated statements of income. The value allocated to above or below market leases areamortized over the remaining lease term as an adjustment to rental income.

Real estate assets are depreciated using the straight-line method over their estimated useful lives.Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred.Major replacements and betterments which improve or extend the life of the asset are capitalized anddepreciated over their estimated useful life.

Our properties are reviewed for impairment each quarter, if events or circumstances changeindicating that the carrying amount of an asset may not be recoverable. We recognize impairment if theundiscounted estimated cash flows to be generated by an asset is less than the carrying amount of suchasset. Measurement of impairment is based on the asset’s estimated fair value. In evaluating forimpairment, many factors are considered, including estimated current and expected operating cashflows from the property during the projected holding period, costs necessary to extend the life orimprove the asset, expected capitalization rates, projected stabilized net operating income, selling costs,and the ability to hold and dispose of the asset in the ordinary course of business. Impairment chargesmay be necessary in the event discount rates, capitalization rates, lease-up periods, future economicconditions, and other relevant factors vary significantly from those assumed in valuing the property.

Real estate is classified as held-for-sale when we commit to a plan of sale, the asset is available forimmediate sale, there is an active program to locate a buyer, and it is probable the sale will becompleted within one year. Real estate assets that are expected to be disposed of are valued at thelower of the asset’s carrying amount or its fair value less costs to sell.

We recognize sales of real estate properties upon closing. Payments received from purchasers priorto closing are recorded as deposits. Gain on real estate sold is recognized using the full accrual methodwhen the collectability of the sale price is reasonably assured and we are not obligated to performsignificant activities after the sale. A gain may be deferred in whole or in part until collectability of thesales price is reasonably assured and the earnings process is complete.

Investments in Equity Affiliates. We invest in joint ventures that are formed to invest in real estaterelated assets or businesses. These joint ventures are not majority owned or controlled by us, or areVIEs for which we are the primary beneficiary, and are not consolidated in our financial statements.These investments are recorded under either the equity or cost method of accounting as deemed

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appropriate. We evaluate these investments for impairment whenever events or changes incircumstances indicate that the carrying amounts of such investments may not be recoverable. Werecognize an impairment loss if the estimated fair value of the investment is less than its carryingamount and we determine that the impairment is other-than-temporary. We record our share of the netincome and losses from the underlying properties of our equity method investments and anyother-than-temporary impairment on these investments as income or losses from equity affiliates in theconsolidated statements of income.

Goodwill and Other Intangible Assets. Significant judgement is required to estimate the fair valueof intangible assets and in assigning their estimated useful lives. Accordingly, we typically seek theassistance of independent third party valuation specialists for significant intangible assets. The fair valueestimates are based on available historical information and on future expectations and assumptions wedeem reasonable.

We generally use an income based valuation method to estimate the fair value of intangible assets,which discounts expected future cash flows to present value using estimates and assumptions we deemreasonable. For intangible assets related to acquired technology, we use the replacement cost methodto determine fair value.

Determining the estimated useful lives of intangible assets also requires judgment. Certainintangible assets, such as GSE licenses, have been deemed to have indefinite lives while otherintangible assets, such as broker and borrower relationships, above/below market rent and acquiredtechnology have been deemed to have finite lives. Our assessment as to which intangible assets aredeemed to have finite or indefinite lives is based on several factors including economic barriers of entryfor the acquired product lines, scarcity of available GSE licenses, technology life cycles, retention trendsand our operating plans, among other factors.

Goodwill and indefinite-lived intangible assets are not amortized, while finite-lived intangible assetsare amortized over the estimated useful lives of the assets on a straight-line basis. Indefinite-livedintangible assets, including goodwill, are tested for impairment whenever events or changes incircumstances indicate that the carrying value of such assets may not be recoverable. In addition, withrespect to goodwill, an impairment analysis is performed at least annually. We have elected to make thefirst day of our fiscal fourth quarter the annual impairment assessment date for goodwill. We firstassess qualitative factors to determine whether it is more likely than not that the fair value is less thanthe carrying value. If, based on that assessment, we believe it is more likely than not that the fair valueis less than the carrying value, then a two-step goodwill impairment test is performed. Based on theimpairment analysis performed as of October 1, 2018, there was no indication that the indefinite-livedintangible assets, including goodwill, were impaired and there were no events or changes incircumstances indicating impairment at December 31, 2018.

Business Combinations. Business combinations are accounted for under the acquisition method ofaccounting, under which the purchase price is allocated to the fair value of the assets acquired andliabilities assumed at acquisition. The excess of the purchase price over the amount allocated to theassets acquired and liabilities assumed is recorded as goodwill. Adjustments to the assets acquired andliabilities assumed made during the measurement period are recorded in the period in which theadjustment is identified, with a corresponding adjustment to goodwill. If any adjustments are made

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subsequent to the measurement period, which could be up to one year after the acquisition, theseadjustments are recorded to the consolidated statements of income. Acquisition related costs areexpensed as incurred.

Hedging Activities and Derivatives. We measure derivative instruments at fair value and recordthem as assets or liabilities. Fair value adjustments will affect either accumulated other comprehensiveincome until the hedged item is recognized in earnings, or net income depending on whether thederivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedgingactivity. We use derivatives for hedging purposes rather than trading or speculation. Fair values areestimated based on current market data from financial sources that trade such instruments and arebased on prevailing market data and derived from third party proprietary models based on wellrecognized financial principles and reasonable estimates about relevant future market conditions.

The accounting for changes in the fair value of derivatives depends on the intended use of thederivative, whether we have elected to designate a derivative in a hedging relationship and apply hedgeaccounting and whether the hedging relationship has satisfied the criteria necessary to apply hedgeaccounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fairvalue of an asset, liability, or firm commitment attributable to a particular risk, such as interest raterisk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposureto variability in expected future cash flows, or other types of forecasted transactions, are consideredcash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or lossrecognition on the hedging instrument with the recognition of the changes in the fair value of thehedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earningseffect of the hedged forecasted transactions in a cash flow hedge. These derivative instruments must beeffective in reducing risk exposure in order to qualify for hedge accounting. When the terms of anunderlying transaction are modified, or when the underlying hedged item ceases to exist, all changes inthe fair value of the instrument are marked-to-market with changes in value included in net income foreach period until the derivative instrument matures or is settled. Any derivative instrument used forrisk management that does not meet the hedging criteria is marked-to-market with the changes in valueincluded in earnings. In cases where a derivative instrument is terminated early, any gain or loss isgenerally amortized over the remaining life of the hedged item. We may also enter into derivativecontracts that are intended to economically hedge certain risks, even though hedge accounting does notapply or we elect not to apply hedge accounting. The ineffective portion of a derivative’s change in fairvalue is recognized immediately in earnings.

In connection with our interest rate risk management, we may hedge a portion of our interest raterisk by entering into derivative instrument contracts to manage differences in the amount, timing, andduration of our expected cash receipts and our expected cash payments principally related to ourinvestments and borrowings. Our objectives in using interest rate derivatives are to add stability tointerest income and to manage our exposure to interest rate movements. To accomplish this objective,we have used, and may again in the future, use interest rate swaps as part of our interest rate riskmanagement strategy. Interest rate swaps designated as cash flow hedges involve the receipt ofvariable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the lifeof the agreements without exchange of the underlying notional amount.

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Our rate lock and forward sales commitments associated with the Agency Business meet thedefinition of a derivative and are recorded at fair value. The estimated fair value of rate lockcommitments includes the effects of interest rate movements as well as the fair value of the expectednet cash flows associated with the servicing of the loan which is recorded as income from MSRs in theconsolidated statements of income. The estimated fair value of forward sale commitments includes theeffects of interest rate movements between the trade date and balance sheet date. Adjustments to thefair value are reflected as a component of other income, net in the consolidated statements of income.

Revenue Recognition. Interest income is recognized on the accrual basis as it is earned. In certaininstances, the borrower pays an additional amount of interest at the time the loan is closed, anorigination fee, a prepayment fee and/or deferred interest upon maturity. In some cases, interestincome may also include the amortization or accretion of premiums and discounts arising from thepurchase or origination of the loan or security. This additional income, net of any direct loanorigination costs incurred, is deferred and accreted into interest income on an effective yield or‘‘interest’’ method adjusted for actual prepayment activity over the life of the related loan or security asa yield adjustment. Income recognition is suspended for loans when, in our opinion, a full recovery ofall contractual principal is not probable. Income recognition is resumed when the loan becomescontractually current and performance is resumed. We record interest income on certain impaired loansto the extent cash is received, as the borrower continues to make interest payments. We record loanloss reserves related to these loans when it is deemed that full recovery of principal and accruedinterest is not probable.

Several of our loans provide for accrual of interest at specified rates, which differ from currentpayment terms. Interest is recognized on such loans at the accrual rate subject to our determinationthat accrued interest and outstanding principal are ultimately collectible, based on the underlyingcollateral and operations of the asset. If we cannot make this determination, interest income above thecurrent pay rate is recognized only upon actual receipt.

Given the transitional nature of some of our real estate loans, we may require funds to be placedinto an interest reserve, based on contractual requirements, to cover debt service costs. We will analyzethese interest reserves on a periodic basis and determine if any additional interest reserves are needed.Recognition of income on loans with funded interest reserves are accounted for in the same manner asloans without funded interest reserves. We do not recognize interest income on loans in which theborrower has failed to make the contractual interest payment due or has not replenished the interestreserve account. Income from non-performing loans is generally recognized on a cash basis only to theextent it is received. Full income recognition will resume when the loan becomes contractually currentand performance has recommenced.

Additionally, interest income is recorded when earned from equity participation interests, referredto as equity kickers. These equity kickers have the potential to generate additional revenues to us as aresult of excess cash flow distributions and/or as appreciated properties are sold or refinanced.

Gain on sales, including fee-based services, net—Gain on sales, including fee-based services, netincludes commitment fees, broker fees, loan assumption fees, loan origination fees and gains on sale ofloans of our Agency Business. In some instances, the borrower pays an additional amount of interest atthe time the loan is closed, an origination fee, net of any direct loan origination costs incurred, which is

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recognized upon the sale of the loan. Revenue recognition occurs when the related services areperformed, unless significant contingencies exist, and for the sale of loans, when all the incidence ofownership passes to the buyer. Interest income is recognized on the accrual basis as it is earned fromloans held-for-sale.

Property operating income—Property operating income represents income associated with theoperations of commercial real estate properties classified as real estate owned. We recognize revenuefor these activities when the fees are fixed or determinable, or are evidenced by an arrangement,collection is reasonably assured and the services under the arrangement have been provided.

Other income, net—Other income, net represents loan structuring, modification and defeasance, aswell as broker fees, miscellaneous asset management fees associated with our loan and investmentportfolio, and changes in the fair value of certain derivatives. We recognize these forms of incomewhen the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonablyassured and the services under the arrangement have been provided.

Stock-Based Compensation. We grant stock awards to certain of our employees and directors,consisting of shares of our common stock that vest immediately or annually over a multi-year period,subject to the recipient’s continued service to us. We record stock-based compensation expense at thegrant date fair value of the related stock-based award at the grant date (for the portion that vestsimmediately) or ratably over the respective vesting periods. Dividends are paid on restricted stock asdividends are paid on shares of our common stock whether or not they are vested. Stock-basedcompensation is disclosed in our consolidated statements of income under ‘‘employee compensationand benefits’’ for employees and under ‘‘selling and administrative’’ expense for non-employees and theBoard of Directors.

Income Taxes. We organize and conduct our operations to qualify as a REIT and to comply withthe provisions of the Internal Revenue Code with respect thereto. A REIT is generally not subject tofederal income tax on its REIT-taxable income that it distributes to its stockholders, provided that itdistributes at least 90% of its REIT-taxable income and meets certain other requirements. CertainREIT income may be subject to state and local income taxes.

The Agency Business mainly operates through a TRS, which is a part of our TRS ConsolidatedGroup and is subject to U.S. federal, state and local income taxes. In general, our TRS entities mayhold assets that the REIT cannot hold directly and may engage in real estate or non-real estate-relatedbusiness. Current and deferred taxes are recorded on the portion of earnings (losses) recognized by uswith respect to our interest in TRSs. Deferred income tax assets and liabilities are calculated based ontemporary differences between our GAAP consolidated financial statements and the federal, state, localtax basis of assets and liabilities as of the consolidated balance sheets. We evaluate the realizability ofour deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognize avaluation allowance if, based on the available evidence, it is more likely than not that some portion orall of our deferred tax assets will not be realized. When evaluating the realizability of our deferred taxassets, we consider estimates of expected future taxable income, existing and projected book/taxdifferences, tax planning strategies available and the general and industry specific economic outlook.

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Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

We periodically evaluate tax positions to determine whether it is more likely than not that suchpositions would be sustained upon examination by a tax authority for all open tax years, as defined bythe statute of limitations, based on their technical merits. We report interest and penalties related totax uncertainties as a component of the income tax provision.

Earnings Per Share. We present both basic and diluted earnings per share (‘‘EPS’’). Basic EPSexcludes dilution and is computed by dividing net income available to common stockholders by theweighted average number of shares outstanding for the period. Diluted EPS reflects the potentialdilution that could occur if securities or other contracts to issue common stock were exercised orconverted into common stock, where such exercise or conversion would result in a lower EPS amount.

Recently Adopted Accounting Pronouncements

Description Adoption Date Effect on Financial Statements

In March 2018, the FASB issued ASU 2018-05, N/A We recognized theIncome Taxes: Amendments to SEC Paragraphs estimated impact of thePursuant to SEC Staff Accounting Bulletin Tax Reform in ourNo. 118 which allowed SEC registrants to record consolidated financialprovisional amounts in earnings for the year ended statements for the yearDecember 31, 2017 due to complexities involved in ended December 31,accounting for the enacted Tax Reform. 2017.

Since 2014, the FASB has issued several First quarter of 2018 The adoption of thisamendments to its guidance on revenue guidance did not have arecognition. The amended guidance, among other material impact on ourthings, introduces a new framework for a single consolidated financialcomprehensive model that can be used when statements. This standardaccounting for revenue and supersedes most may impact the timing ofcurrent revenue recognition guidance, including gains on certain futurethat which pertains to specific industries. The core sales of real estate.principle states that an entity should recognizerevenue to depict the transfer of promised goodsor services in an amount that reflects theconsideration to which the entity expects to beentitled in exchange for such goods and services. Italso requires expanded quantitative and qualitativedisclosures that will enable financial statementusers to understand the nature, amount, timingand uncertainty of revenue and cash flows arisingfrom contracts with customers. Most revenueassociated with financial instruments, includinginterest and loan origination fees, along with gainsand losses on investment securities, derivatives andsales of financial instruments are excluded fromthe scope of the guidance.

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Description Adoption Date Effect on Financial Statements

In May 2017, the FASB issued ASU 2017-09, First quarter of 2018 This ASU requiredCompensation—Stock Compensation: Scope of prospective adoption,Modification Accounting. This ASU clarifies when therefore, any futurechanges to the terms or conditions of a share- award changes will bebased payment award must be accounted for as evaluated under themodifications. Many entities today apply the amended guidance.modification accounting guidance when any of theterms or conditions of an award are changed, evenif the changes are not substantive. Under the newguidance, modification accounting will not apply toa share-based payment award if all of thefollowing are the same immediately before andafter the change; (1) the award’s fair value; (2) theaward’s vesting conditions; and (3) the award’sclassification as an equity or liability instrument.

In January 2017, the FASB issued ASU 2017-01, First quarter of 2018 This ASU requiredBusiness Combinations: Clarifying the Definition prospective adoption,of a Business. This ASU changes the definition of therefore, any futurea business to assist with evaluating when a set of acquisitions will betransferred assets and activities constitutes a evaluated under thebusiness. The guidance requires an entity to amended guidance.evaluate if substantially all of the fair value of thegross assets acquired is concentrated in a singleidentifiable asset or a group of similar identifiableassets; if so, the set of transferred assets andactivities is not a business. The guidance alsorequires a business to include at least onesubstantive process and narrows the definition ofoutputs.

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Description Adoption Date Effect on Financial Statements

In November 2016, the FASB issued ASU 2016-18, First quarter of 2018 This guidance requiredStatement of Cash Flows: Restricted Cash. This retrospective adoption,ASU requires changes in the total of cash, cash therefore, we adjustedequivalents, restricted cash, and restricted cash the cash flow statementequivalents to be shown in the statement of cash for the comparable priorflows. Previous guidance required the change in period. The followingcash and cash equivalents be shown on the table shows the impact ofstatement of cash flows, with cash used to fund the adoption of thisrestricted cash and restricted cash equivalents guidance, as well as theshown as a component of operating, investing, or adoption of ASU 2016-15financing activities. Entities are now also required described below.to reconcile the total of cash, cash equivalents,restricted cash, and restricted cash equivalents aspresented in the statement of cash flows to therelated captions in the balance sheet when thesebalances are presented separately in the balancesheet.

In August 2016, the FASB issued ASU 2016-15, First quarter of 2018 This guidance requiredStatement of Cash Flows, which provides eight retrospective adoption,targeted changes to how cash receipts and cash therefore, we reclassifiedpayments are presented and classified in the $1.1 million of netstatement of cash flows. proceeds from insurance

settlements from netcash provided byoperating activities to netcash used in investingactivities in 2017. Wealso chose the cumulativeearnings approach fordistributions receivedfrom equity methodinvestees, which did notresult in any changes inhow we account for suchdistributions. Thefollowing table shows theimpact of the adoptionof ASU 2016-15 andASU 2016-18.

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Year Ended December 31,2017 2016(in thousands)

As previously reported under GAAP applicable at the timeCash and cash equivalents at beginning of period . . . . . . . . . $ 138,645 $ 188,709Net decrease in cash and cash equivalents . . . . . . . . . . . . . . (34,271) (50,064)Cash and cash equivalents at end of period . . . . . . . . . . . . . 104,374 138,645Net cash provided by (used in) operating activities: changes

in operating assets and liabilities . . . . . . . . . . . . . . . . . . . 822 (3,727)Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (907,949) (201,917)Net cash provided by financing activities . . . . . . . . . . . . . . . 412,844 349,471

As currently reported under ASU 2016-18 and ASU 2016-15Cash, cash equivalents and restricted cash at beginning of

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 167,960 $ 237,010Net increase (decrease) in cash, cash equivalents and

restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,812 (69,050)Cash, cash equivalents and restricted cash at end of period . . 243,772 167,960Net cash provided by (used in) operating activities: changes

in operating assets and liabilities . . . . . . . . . . . . . . . . . . . (308) (4,624)Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (906,845) (196,917)Net cash provided by financing activities . . . . . . . . . . . . . . . 522,953 326,382

Description Adoption Date Effect on Financial Statements

In January 2016, the FASB issued ASU 2016-01, First quarter of 2018 The adoption of thisFinancial Instruments—Overall: Consensuses of guidance did not have athe FASB Emerging Issues Task Force. This ASU material impact on ourrequires that unconsolidated equity investments consolidated financialnot accounted for under the equity method be statements. In connectionrecorded at fair value, with changes in fair value with the adoption of thisrecorded through net income. The accounting ASU, we reclassifiedprinciples that permitted available-for-sale $0.2 million of unrealizedclassification with unrealized holding gains and gains on available-for-losses recorded in other comprehensive income for sale securities fromequity securities will no longer be applicable. In accumulated otheraddition, financial liabilities measured using the comprehensive income tofair value option will need to present any change accumulated deficit.in fair value caused by a change in instrument-specific credit risk separately in othercomprehensive income.

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Recently Issued Accounting Pronouncements

Description Effective Date Effect on Financial Statements

In June 2016, the FASB issued ASU 2016-13, First quarter of 2020 We are evaluating theFinancial Instruments—Credit Losses: with early adoption timing of our adoptionMeasurement of Credit Losses on Financial permitted beginning and the impact thisInstruments. This ASU requires the measurement in the first quarter of guidance may have onof all expected credit losses for financial assets 2019 our consolidatedheld at the reporting date based on historical financial statements.experience, current conditions, and reasonable andsupportable forecasts. Entities will be required touse forward-looking information to better formtheir credit loss estimates. This ASU also requiresenhanced disclosures to help financial statementusers better understand significant estimates andjudgments used in estimating credit losses.

In November 2018, the FASB issued ASU 2018-17, First quarter of 2020 We are currentlyConsolidation (Topic 810): Targeted Improvements evaluating this guidanceto Related Party Guidance for Variable Interest to determine the impactEntities. This ASU amends the guidance for to our consolidateddetermining whether a decision-making fee is a financial statements.variable interest and requires companies toconsider indirect interests held through relatedparties under common control on a proportionalbasis rather than as the equivalent of a directinterest in its entirety (as currently required inGAAP).

In August 2018, the FASB issued ASU 2018-15, First quarter of 2020 We are currentlyIntangibles—Goodwill and Other—Internal Use evaluating this guidanceSoftware (Subtopic 350-40): Customer’s to determine the impactAccounting for Implementation Costs Incurred in to our consolidateda Cloud Computing Arrangement That is a Service financial statements.Contract. The amended guidance requirescompanies to apply the internal-use softwareguidance in ASC 350-40 to implementation costsincurred in a hosting arrangement that is a servicecontract to determine whether to capitalize certainimplementation costs or expense them as incurred.

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December 31, 2018

Note 2—Basis of Presentation and Significant Accounting Policies (Continued)

Description Effective Date Effect on Financial Statements

In August 2018, the FASB issued ASU 2018-13, First quarter of 2020 We do not expect theFair Value Measurement (Topic 820)—Disclosure adoption of this guidanceFramework—Changes to the Disclosure to have a significantRequirements for Fair Value Measurement, which impact to ourmakes a number of changes meant to add, modify consolidated financialor remove certain disclosure requirements statements.associated with changes between hierarchyassociated with Level 1, Level 2 and Level 3 fairvalue measurements. Early adoption is permittedupon issuance of the update.

Since 2016, the FASB has issued several First quarter of 2019 We have evaluated thisamendments to its guidance on leases. The ASU and expect theamended guidance, among other things, requires adoption of this guidancelessees to record most leases on their balance to increase both our totalsheet through operating and finance lease assets and total liabilitiesliabilities and corresponding right-of-use assets. It by less than 1%. Thehas also added additional footnote disclosures of adoption will not have ankey information about those arrangements and impact on ourprovides transition relief on comparative period consolidated results ofreporting through a cumulative-effect adjustment operations.at the beginning of the period of adoption.

In June 2018, the FASB issued ASU 2018-07, First quarter of 2019 We have evaluated thisCompensation—Stock Compensation to expand ASU and determined thethe scope of ASC Topic 718, Compensation— adoption of this guidanceStock Compensation, to include share-based will not have a significantpayment transactions for acquiring goods and impact on ourservices from nonemployees. consolidated financial

statements.

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December 31, 2018

Note 3—Loans and Investments

The composition of our Structured Business loan and investment portfolio is as follows ($ inthousands):

Wtd. Avg.Remaining Wtd. Avg. Wtd. Avg.

December 31, Percent of Loan Wtd. Avg. Months to First Dollar Last Dollar2018 Total Count Pay Rate(1) Maturity LTV Ratio(2) LTV Ratio(3)

Bridge loans . . . . . . . . . . . . . . . $2,992,814 91% 167 6.84% 18.5 0% 74%Preferred equity investments . . . 181,661 6% 10 7.97% 78.0 66% 89%Mezzanine loans . . . . . . . . . . . . 108,867 3% 13 10.57% 22.1 28% 72%

3,283,342 100% 190 7.02% 22.0 5% 75%

Allowance for loan losses . . . . . (71,069)Unearned revenue . . . . . . . . . . (12,128)Loans and investments, net . . . . $3,200,145

December 31,2017

Bridge loans . . . . . . . . . . . . . . . $2,422,105 91% 150 6.10% 20.9 0% 72%Preferred equity investments . . . 142,892 6% 12 6.47% 68.7 64% 90%Mezzanine loans . . . . . . . . . . . . 87,541 3% 8 10.78% 24.8 20% 63%

2,652,538 100% 170 6.28% 23.6 4% 73%

Allowance for loan losses . . . . . (62,783)Unearned revenue . . . . . . . . . . (10,628)Loans and investments, net . . . . $2,579,127

(1) ‘‘Weighted Average Pay Rate’’ is a weighted average, based on the UPB of each loan in our portfolio,of the interest rate required to be paid monthly as stated in the individual loan agreements. Certainloans and investments that require an additional rate of interest ‘‘Accrual Rate’’ to be paid at maturityare not included in the weighted average pay rate as shown in the table.

(2) The ‘‘First Dollar Loan-to-Value (‘‘LTV’’) Ratio’’ is calculated by comparing the total of our senior mostdollar and all senior lien positions within the capital stack to the fair value of the underlying collateralto determine the point at which we will absorb a total loss of our position.

(3) The ‘‘Last Dollar LTV Ratio’’ is calculated by comparing the total of the carrying value of our loan andall senior lien positions within the capital stack to the fair value of the underlying collateral todetermine the point at which we will initially absorb a loss.

Concentration of Credit Risk

We are subject to concentration risk in that, at December 31, 2018, the UPB related to 45 loanswith five different borrowers represented 22% of total assets. At December 31, 2017, the UPB relatedto 42 loans with five different borrowers represented 24% of total assets. During both 2018 and 2017,no single loan or investment represented more than 10% of our total assets and no single investorgroup generated over 10% of our revenue. For details on our concentration of related party loans andinvestments, see Note 19—Agreements and Transactions with Related Parties.

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Note 3—Loans and Investments (Continued)

We assign a credit risk rating of pass, pass/watch, special mention, substandard or doubtful to eachloan and investment, with a pass rating being the lowest risk and a doubtful rating being the highestrisk. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTVratios, borrower strength, asset quality, and funded cash reserves. Other factors such as guarantees,market strength, and remaining loan term and borrower equity are also reviewed and factored intodetermining the credit risk rating assigned to each loan. This metric provides a helpful snapshot ofportfolio quality and credit risk. All portfolio assets are subject to, at a minimum, a thorough quarterlyfinancial evaluation in which historical operating performance and forward-looking projections arereviewed, however, we maintain a higher level of scrutiny and focus on loans that we consider ‘‘highrisk’’ and that possess deteriorating credit quality.

Generally speaking, given our typical loan profile, risk ratings of pass, pass/watch and specialmention suggest that we expect the loan to make both principal and interest payments according to thecontractual terms of the loan agreement, and is not considered impaired. A risk rating of substandardindicates we anticipate the loan may require a modification of some kind. A risk rating of doubtfulindicates we expect the loan to underperform over its term, and there could be loss of interest and/orprincipal. Further, while the above are the primary guidelines used in determining a certain risk rating,subjective items such as borrower strength, market strength or asset quality may result in a rating thatis higher or lower than might be indicated by any risk rating matrix.

As a result of the loan review process, at December 31, 2018 and 2017, we identified eight loansand investments that we consider higher-risk loans that had a carrying value, before loan loss reserves,of $128.7 million and $126.5 million, respectively, and a weighted average last dollar LTV ratio of 99%and 93%, respectively.

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Note 3—Loans and Investments (Continued)

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by assetclass is as follows ($ in thousands):

December 31, 2018Wtd. Avg. Wtd. Avg. Wtd. Avg.

Percentage of Internal First Dollar Last DollarAsset Class UPB Portfolio Risk Rating LTV Ratio LTV Ratio

Multifamily . . . . . . . . . . . . . . . . . $2,427,920 74% pass/watch 5% 75%Self Storage . . . . . . . . . . . . . . . . . 301,830 9% pass/watch 0% 72%Land . . . . . . . . . . . . . . . . . . . . . . 151,628 5% substandard 0% 90%Office . . . . . . . . . . . . . . . . . . . . . 132,047 4% special mention 3% 68%Healthcare . . . . . . . . . . . . . . . . . . 122,775 4% pass/watch 0% 77%Hotel . . . . . . . . . . . . . . . . . . . . . 100,075 3% pass/watch 13% 66%Retail . . . . . . . . . . . . . . . . . . . . . 45,367 1% pass/watch 6% 65%Commercial . . . . . . . . . . . . . . . . . 1,700 <1% doubtful 63% 63%Total . . . . . . . . . . . . . . . . . . . . . . $3,283,342 100% pass/watch 5% 75%

December 31, 2017

Multifamily . . . . . . . . . . . . . . . . . $1,925,529 73% pass/watch 4% 72%Self Storage . . . . . . . . . . . . . . . . . 301,830 11% pass 0% 71%Land . . . . . . . . . . . . . . . . . . . . . . 132,828 5% substandard 0% 90%Office . . . . . . . . . . . . . . . . . . . . . 107,853 4% pass/watch 1% 64%Healthcare . . . . . . . . . . . . . . . . . . 55,615 2% pass/watch 0% 74%Hotel . . . . . . . . . . . . . . . . . . . . . 90,725 3% special mention 37% 81%Retail . . . . . . . . . . . . . . . . . . . . . 36,458 1% pass/watch 8% 66%Commercial . . . . . . . . . . . . . . . . . 1,700 <1% doubtful 63% 63%Total . . . . . . . . . . . . . . . . . . . . . . $2,652,538 100% pass/watch 4% 73%

Geographic Concentration Risk

As of December 31, 2018, 23% and 18% of the outstanding balance of our loan and investmentportfolio had underlying properties in New York and Texas, respectively. As of December 31, 2017,23%, 21% and 11% of the outstanding balance of our loan and investment portfolio had underlyingproperties in Texas, New York and California, respectively. No other states represented 10% or more ofthe total loan and investment portfolio.

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Impaired Loans and Allowance for Loan Losses

A summary of the changes in the allowance for loan losses is as follows (in thousands):

Year Ended December 31,2018 2017 2016

Allowance at beginning of period . . . . . . . . . . . . . . . $62,783 $ 83,712 $86,762Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . 13,986 2,000 59Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,173) (20,473) (2,959)Recoveries of reserves . . . . . . . . . . . . . . . . . . . . . . . (2,527) (2,456) (150)Allowance at end of period . . . . . . . . . . . . . . . . . . . . $71,069 $ 62,783 $83,712

During 2018, we determined that the fair value of the underlying collateral (land developmentproject) securing six loans with a carrying value of $121.4 million was less than the net carrying value ofthe loans, which resulted in a provision for loan losses of $12.3 million. We also fully reserved a bridgeloan and recorded a provision for loan loss of $1.7 million.

In addition, during 2018, we received $31.6 million to settle a non-performing preferred equityinvestment in a hotel property with a UPB of $34.8 million and a net carrying value of $29.1 million,resulting in a charge-off of $3.2 million and a reserve recovery of $2.5 million. We also receivedpayments and recorded recoveries of $3.1 million related to previously written-off loans andinvestments, which are included as a component of provision for loan losses (net of recoveries) on theconsolidated statements of income.

During 2017, we incurred a $20.5 million charge-off of a fully reserved junior participation loanand we determined that the fair value of the underlying collateral securing a preferred equityinvestment with an aggregate carrying value of $34.8 million was less than the net carrying value of theinvestment, which resulted in a $2.0 million provision for loan losses. In addition, a fully reservedmezzanine loan with a UPB of $1.8 million paid off in full, which resulted in a $1.8 million reserverecovery, and we recorded a reserve recovery of $0.7 million on a multifamily bridge loan.

During 2016, we received a $1.8 million discounted payoff on an impaired bridge loan with acarrying value before reserves of $4.8 million, resulting in the recognition of an additional provision forloan losses of $0.1 million and a charge-off of $3.0 million.

The ratio of net recoveries (charge-offs) to the average loans and investments outstanding was0.1%, (0.8)% and (0.2)% for 2018, 2017 and 2016, respectively.

There were no loans for which the fair value of the collateral securing the loan was less than thecarrying value of the loan for which we had not recorded a provision for loan loss as of December 31,2018, 2017 and 2016.

We have six loans with a carrying value totaling $121.4 million at December 31, 2018 that arecollateralized by a land development project. These loans were scheduled to mature in September 2018and were extended to September 2019. The loans do not carry a current pay rate of interest, but five ofthe loans with a carrying value totaling $112.0 million entitle us to a weighted average accrual rate ofinterest of 9.09%. In 2008, we suspended the recording of the accrual rate of interest on these loans, as

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they were impaired and we deemed the collection of this interest to be doubtful. At December 31, 2018and 2017, we had cumulative allowances for loan losses of $61.4 million and $49.1 million, respectively,related to these loans. The loans are subject to certain risks associated with a development projectincluding, but not limited to, availability of construction financing, increases in projected constructioncosts, demand for the development’s outputs upon completion of the project, and litigation risk.Additionally, these loans were not classified as non-performing as the borrower is in compliance withall of the terms and conditions of the loans.

A summary of our impaired loans by asset class is as follows (in thousands):

Year EndedDecember 31, 2018 December 31, 2018

Allowance Average InterestCarrying for Loan Recorded Income

Asset Class UPB Value(1) Losses Investment(2) Recognized

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134,215 $127,869 $67,869 $132,651 $103Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 17,375 —Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,266 2,266 1,500 2,277 127Commercial . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1,700 1,700 1,700 —Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138,181 $131,835 $71,069 $154,003 $230

Year EndedDecember 31, 2017 December 31, 2017

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131,086 $124,812 $53,883 $131,086 $ —Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,750 34,750 5,700 34,750 371Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,288 2,288 1,500 14,926 107Commercial . . . . . . . . . . . . . . . . . . . . . . . . 1,700 1,700 1,700 1,700 —Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . — — — 1,271 22Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $169,824 $163,550 $62,783 $183,733 $500

(1) Represents the UPB of five impaired loans (less unearned revenue and other holdbacks andadjustments) by asset class at both December 31, 2018 and 2017.

(2) Represents an average of the beginning and ending UPB of each asset class.

At December 31, 2018, two loans with an aggregate net carrying value of $0.8 million, net ofrelated loan loss reserves of $1.7 million, were classified as non-performing. At December 31, 2017, twoloans with an aggregate net carrying value of $29.1 million, net of related loan loss reserves of$7.4 million, were classified as non-performing. Income from non-performing loans is generallyrecognized on a cash basis when it is received. Full income recognition will resume when the loanbecomes contractually current and performance has recommenced.

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Note 3—Loans and Investments (Continued)

A summary of our non-performing loans by asset class is as follows (in thousands):

December 31, 2018 December 31, 2017Less Than Greater Than Less Than Greater Than

Carrying 90 Days 90 Days Carrying 90 Days 90 DaysAsset Class Value Past Due Past Due Value Past Due Past Due

Commercial . . . . . . . . . . . . . . . . $1,700 $— $1,700 $ 1,700 $— $ 1,700Office . . . . . . . . . . . . . . . . . . . . . 832 — 832 — — —Hotel . . . . . . . . . . . . . . . . . . . . . — — — 34,750 — 34,750Total . . . . . . . . . . . . . . . . . . . . . . $2,532 $— $2,532 $36,450 $— $36,450

At both December 31, 2018 and 2017, we had no loans contractually past due 90 days or more thatare still accruing interest.

There were no loan modifications, refinancing’s and/or extensions during 2018 that wereconsidered troubled debt restructurings. During 2017, there was a $34.8 million loan to a hotel propertythat was modified and considered a troubled debt restructuring as a result of a forbearance agreemententered into with the borrower in 2017. This loan was subsequently classified as non-performing in 2017and paid off during 2018. This loan was modified to increase the total recovery of the combinedprincipal and interest. There were no other loans in which we considered the modifications to betroubled debt restructurings and no additional loans considered to be impaired as a result of ourtroubled debt restructuring analysis performed during 2018 and 2017.

Given the transitional nature of some of our real estate loans, we may require funds to be placedinto an interest reserve, based on contractual requirements, to cover debt service costs. AtDecember 31, 2018, we had total interest reserves of $48.9 million on 110 loans with an aggregate UPBof $2.22 billion. At December 31, 2017, we had total interest reserves of $52.5 million on 81 loans withan aggregate UPB of $1.57 billion.

Note 4—Loans Held-for-Sale, Net

Loans held-for-sale, net consists of the following (in thousands):

December 31, December 31,2018 2017

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $358,790 $243,717Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,004 47,545FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,170 987

472,964 292,249Fair value of future MSR . . . . . . . . . . . . . . . . . . . . . . . . 10,253 5,806Unearned discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,553) (612)Loans held-for-sale, net . . . . . . . . . . . . . . . . . . . . . . . . . $481,664 $297,443

Our loans held-for-sale, net are typically sold within 60 days of loan origination and the gain onsales are included in gain on sales, including fee-based services, net in the consolidated statements of

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Note 4—Loans Held-for-Sale, Net (Continued)

income. During 2018 and 2017, we sold $4.92 billion and $4.81 billion, respectively, of loansheld-for-sale and recorded gains on sales of $65.5 million and $68.3 million, respectively. During 2016,we sold $1.49 billion of loans held-for-sale, excluding $418.2 million of sales related to loans that wereacquired as part of the Acquisition, and recorded gains on sales of $22.8 million.

Note 5—Capitalized Mortgage Servicing Rights

Our capitalized MSRs reflect commercial real estate MSRs derived from loans sold in our AgencyBusiness, or MSRs acquired as part of the Acquisition or in the open market from third parties. Theweighted average estimated life remaining of our MSRs held at December 31, 2018 and 2017 was7.6 years and 7.2 years, respectively.

A summary of our capitalized MSR activity is as follows (in thousands):

Year Ended December 31, 2018 Year Ended December 31, 2017Acquired Originated Total Acquired Originated Total

Balance at beginning of period . . . . $143,270 $109,338 $252,608 $194,800 $ 32,943 $227,743Additions . . . . . . . . . . . . . . . . . . . — 94,344 94,344 1,199 86,700 87,899Amortization . . . . . . . . . . . . . . . . . (28,958) (19,166) (48,124) (37,470) (9,732) (47,202)Write-offs . . . . . . . . . . . . . . . . . . . (17,228) (7,830) (25,058) (15,259) (573) (15,832)Balance at end of period . . . . . . . . $ 97,084 $176,686 $273,770 $143,270 $109,338 $252,608

We collected prepayment fees of $21.9 million and $12.7 million during 2018 and 2017,respectively, which are included as a component of servicing revenue, net on the consolidatedstatements of income. As of December 31, 2018 and 2017, we had no valuation allowance recorded onany of our MSRs.

The expected amortization of capitalized MSRs recorded as of December 31, 2018 is as follows (inthousands). Actual amortization may vary from these estimates.

Year Amortization

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,5462020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,3642021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,9902021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,1892022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,508Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,173Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $273,770

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Note 6—Mortgage Servicing

Product and geographic concentrations that impact our servicing revenue are as follows ($ inthousands):

December 31, 2018Product Concentrations Geographic Concentrations

Percent of UPB PercentProduct UPB Total State of Total

Fannie Mae . . . . . . . . . . . . . . $13,562,667 73% Texas . . . . . . . . . . . . . . . . . . . 20%Freddie Mac . . . . . . . . . . . . . . 4,394,287 24% North Carolina . . . . . . . . . . . . 10%FHA . . . . . . . . . . . . . . . . . . . 644,687 3% New York . . . . . . . . . . . . . . . . 8%Total . . . . . . . . . . . . . . . . . . . $18,601,641 100% California . . . . . . . . . . . . . . . . 8%

Georgia . . . . . . . . . . . . . . . . . 6%Florida . . . . . . . . . . . . . . . . . . 6%Other(1) . . . . . . . . . . . . . . . . . 42%Total . . . . . . . . . . . . . . . . . . . 100%

December 31, 2017Product Concentrations Geographic Concentrations

Percent of UPB PercentProduct UPB Total State of Total

Fannie Mae . . . . . . . . . . . . . . $12,502,699 77% Texas . . . . . . . . . . . . . . . . . . . 22%Freddie Mac . . . . . . . . . . . . . . 3,166,134 20% North Carolina . . . . . . . . . . . . 10%FHA . . . . . . . . . . . . . . . . . . . 537,482 3% New York . . . . . . . . . . . . . . . . 8%Total . . . . . . . . . . . . . . . . . . . $16,206,315 100% California . . . . . . . . . . . . . . . . 8%

Georgia . . . . . . . . . . . . . . . . . 6%Florida . . . . . . . . . . . . . . . . . . 6%Other(1) . . . . . . . . . . . . . . . . . 40%Total . . . . . . . . . . . . . . . . . . . 100%

(1) No other individual state represented 4% or more of the total.

At December 31, 2018 and 2017, our weighted average servicing fee was 45.2 basis points and 47.7basis points, respectively. At December 31, 2018 and 2017, we held total escrow balances of$824.1 million and $750.8 million, respectively, which is not reflected in our consolidated balancesheets. Of the total escrow balances, we held $521.2 million and $477.9 million at December 31, 2018and 2017, respectively, related to loans we are servicing within our Agency Business. These escrows aremaintained in separate accounts at several federally insured depository institutions, which may exceedFDIC insured limits. We earn interest income on the total escrow deposits, generally based on amarket rate of interest negotiated with the financial institutions that hold the escrow deposits. Interestearned on total escrows, net of interest paid to the borrower, was $12.8 million, $5.2 million and$1.1 million during 2018, 2017 and 2016, respectively, and is a component of servicing revenue, net inthe consolidated statements of income.

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Note 7—Securities Held-to-Maturity

Freddie Mac may choose to hold, sell or securitize loans we sell to them under the Freddie MacSBL program. As part of the securitizations under the SBL program, we have the option to purchasethe bottom tranche bond, generally referred to as the ‘‘B Piece,’’ that represents the bottom 10%, orhighest risk, of the securitization. During 2018, we purchased four B Piece bonds with an initial facevalue of $65.2 million, at a discount, for $47.5 million. As of December 31, 2018, we retained 49%, or$106.2 million initial face value, of seven B Piece bonds, which were purchased at a discount for$74.7 million, and sold the remaining 51% to a third party at par. These held-to-maturity debtsecurities are carried at cost, net of unamortized discounts, and are collateralized by a pool ofmultifamily mortgage loans, bear interest at an initial weighted average variable rate of 3.74% and havean estimated weighted average maturity of 5.7 years. The weighted average effective interest rate was10.94% and 12.97% at December 31, 2018 and 2017, respectively, including the accretion of discount.Approximately $15.8 million is estimated to mature within one year, $45.9 million is estimated tomature after one year through five years, $28.0 million is estimated to mature after five years throughten years and $13.8 million is estimated to mature after ten years.

A summary of our B Piece bonds classified as debt securities held-to-maturity is as follows (inthousands):

EstimatedPeriod Face Value Carrying Value Unrealized Gain Fair Value

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . $103,515 $76,363 $2,734 $79,097

December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . $ 40,566 $27,837 $ 602 $28,439

As of December 31, 2018, no impairment was recorded on these held-to-maturity securities.During 2018 and 2017, we recorded interest income of $2.5 million and $0.8 million, respectively,related to these investments.

Note 8—Investments in Equity Affiliates

We account for all investments in equity affiliates under the equity method. A summary of ourinvestments in equity affiliates is as follows (in thousands):

UPB of LoansInvestments in Equity to EquityAffiliates at Affiliates atDecember 31, December 31, December 31,

Equity Affiliates 2018 2017 2018

Arbor Residential Investor LLC . . . . . . . . . $19,260 $19,193 $ —Lightstone Value Plus REIT L.P. . . . . . . . . 1,895 1,895 —JT Prime . . . . . . . . . . . . . . . . . . . . . . . . . . 425 425 —West Shore Cafe . . . . . . . . . . . . . . . . . . . . — 2,140 1,688Lexford Portfolio . . . . . . . . . . . . . . . . . . . . — — 280,500East River Portfolio . . . . . . . . . . . . . . . . . . — — —Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,580 $23,653 $282,188

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Note 8—Investments in Equity Affiliates (Continued)

Arbor Residential Investor LLC (‘‘ARI’’). In 2015, we invested $9.6 million for 50% of our FormerManager’s indirect interest in a joint venture with a third party that was formed to invest in aresidential mortgage banking business. As a result of this transaction, we had an initial indirect interestof 22.5% in the mortgage banking business, which was subject to dilution upon attaining certain profithurdles of the business, and at December 31, 2018, our indirect interest was 16.3%. During 2018, 2017and 2016, we recorded income of $0.7 million, a loss of $7.3 million and income of $9.5 million,respectively, to income (loss) from equity affiliates in the consolidated statements of income related tothis investment. The loss in 2017 included a $5.5 million charge for our proportionate share of alitigation settlement that will be paid over a two-year period. During the first quarter of 2018, we madea $2.4 million payment for our proportionate share of the litigation settlement, which was distributedback to us by our equity affiliate. See Note 19—Agreements and Transactions with Related Parties fordetails.

In 2015, we invested $1.7 million through ARI for a 50% noncontrolling interest in a joint venturethat invests in non-qualified residential mortgages purchased from the mortgage banking business’sorigination platform. We funded additional mortgage purchases of $0.6 million and $5.9 million during2017 and 2016, respectively. During 2018, 2017 and 2016, we received cash distributions totaling$0.7 million, $3.2 million and $13.0 million as a result of the joint venture selling most of its mortgageassets, which were classified as returns of capital. During 2018, 2017 and 2016, we recorded income ofless than $0.1 million, $0.1 million and $0.5 million, respectively, to income (loss) from equity affiliatesin our consolidated statements of income related to this investment. Our basis in this investment wasless than $0.1 million at December 31, 2018.

Lightstone Value Plus REIT L.P. / JT Prime. We own a $1.9 million interest in an unconsolidatedjoint venture that holds common operating partnership units of Lightstone Value Plus REIT L.P.(‘‘Lightstone’’). We also own a 50% noncontrolling interest in an unconsolidated joint venture,JT Prime, which holds common operating partnership units of Lightstone at a carrying value of$0.4 million. The income associated with these investments for all periods presented was de minimis.

West Shore Cafe. We own a 50% noncontrolling interest in the West Shore Lake Cafe, arestaurant/inn lakefront property in Lake Tahoe, California. We provided a $1.7 million first mortgageloan to an affiliated entity to acquire property adjacent to the original property, which is scheduled tomature in May 2019 and bears interest at LIBOR plus 4.0%. During 2018, we determined that thisinvestment exhibited indicators of impairment and, as a result of an impairment analysis performed; werecorded an other-than-temporary impairment of $2.2 million to income (loss) from equity affiliates inthe consolidated statement of income for the full carrying amount of this investment. Also during 2018,we recorded a provision for loan loss of $1.7 million, fully reserving the first mortgage loan.

Lexford Portfolio. We own a $44,000 noncontrolling equity interest in Lexford, a portfolio ofmultifamily assets. In 2018, 2017 and 2016, we received distributions from this equity investment andrecognized income totaling $2.5 million, $2.5 million and $2.8 million, net of expenses, respectively. SeeNote 19—Agreements and Transactions with Related Parties for details.

East River Portfolio. We invested $0.1 million for a 5% interest in a joint venture that owns twomultifamily properties. The joint venture is comprised of a consortium of investors (which includes,among other unaffiliated investors, certain of our officers, our chief executive officer and certain other

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Note 8—Investments in Equity Affiliates (Continued)

related parties) who together own an interest of 95%. We originated a $1.7 million bridge loan to thejoint venture with an interest rate of 5.5% over LIBOR that was repaid in full during 2017. Inconnection with the debt repayment, we received a $0.1 million distribution bringing our basis in thisinvestment to zero. See Note 19—Agreements and Transactions with Related Parties for details.

Equity Participation Interest. During 2017, we received $1.5 million from the redemption of a 25%equity participation interest we held in a multifamily property, which is included in income (loss) fromequity affiliates in our consolidated statements of income. Our basis in this investment was zero priorto this transaction.

Summarized Financial Information

The condensed combined balance sheets for our unconsolidated investments in equity affiliates areas follows (in thousands):

December 31,2018 2017

Condensed Combined Balance Sheets ARI Other Total ARI Other Total

Assets:Cash and cash equivalents . . . . . . . . . . . $ 12,812 $ 36,220 $ 49,032 $ 26,419 $ 36,304 $ 62,723Real estate assets . . . . . . . . . . . . . . . . . 471,021 565,076 1,036,097 303,098 584,580 887,678Other assets . . . . . . . . . . . . . . . . . . . . . 85,192 32,888 118,080 137,782 54,537 192,319Total assets . . . . . . . . . . . . . . . . . . . . . 569,025 634,184 1,203,209 467,299 675,421 1,142,720

Liabilities:Notes payable . . . . . . . . . . . . . . . . . . . . 463,511 664,139 1,127,650 357,410 702,495 1,059,905Other liabilities . . . . . . . . . . . . . . . . . . 23,209 17,539 40,748 34,964 15,885 50,849Total liabilities . . . . . . . . . . . . . . . . . . . 486,720 681,678 1,168,398 392,374 718,380 1,110,754Stockholders’ equity Arbor . . . . . . . . . . 19,260 2,320 21,580 19,193 4,460 23,653Stockholders’ equity . . . . . . . . . . . . . . . 63,045 (49,814) 13,231 55,732 (47,419) 8,313Total stockholders’ equity . . . . . . . . . . . 82,305 (47,494) 34,811 74,925 (42,959) 31,966Total liabilities and equity . . . . . . . . . . . $569,025 $634,184 $1,203,209 $467,299 $675,421 $1,142,720

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 8—Investments in Equity Affiliates (Continued)

The condensed combined statements of operations for our unconsolidated investments in equityaffiliates are as follows (in thousands):

Year Ended December 31,2018 2017 2016

Statements of Operations: ARI Other Total ARI Other Total ARI Other Total

Revenue:Rental income . . . . . . . . . . . . . . . $ — $109,225 $109,225 $ — $103,873 $103,873 $ — $ 99,417 $ 99,417Interest income . . . . . . . . . . . . . . 17,200 259 17,459 9,248 259 9,507 11,726 259 11,985Operating income . . . . . . . . . . . . 217,587 — 217,587 143,743 — 143,743 195,905 — 195,905Reimbursement income . . . . . . . . . — 7,861 7,861 — 7,378 7,378 — 7,085 7,085Other income . . . . . . . . . . . . . . . 14,195 9,019 23,214 2,909 8,420 11,329 213 8,060 8,273

Total revenues . . . . . . . . . . . . . . . 248,982 126,364 375,346 155,900 119,930 275,830 207,844 114,821 322,665

Expenses:Operating expenses . . . . . . . . . . . 226,868 63,602 290,470 154,837 58,289 213,126 142,297 56,679 198,976Interest expense . . . . . . . . . . . . . . 17,694 35,608 53,302 11,436 32,918 44,354 13,331 32,687 46,018Depreciation and amortization . . . . 1,815 27,724 29,539 1,384 29,155 30,539 1,127 29,249 30,376Other expenses . . . . . . . . . . . . . . — 487 487 22,000 471 22,471 — 91 91

Total expenses . . . . . . . . . . . . . . . 246,377 127,421 373,798 189,657 120,833 310,490 156,755 118,706 275,461

Net income (loss) . . . . . . . . . . . . . $ 2,605 $ (1,057) $ 1,548 $(33,757) $ (903) $(34,660) $ 51,089 $ (3,885) $ 47,204

Arbor’s share of income (loss)(1) . . . $ 700 $ 496 $ 1,196 $ (7,247) $ 2,796 $ (4,451) $ 9,950 $ 3,045 $ 12,995

(1) Amount for the year ended December 31, 2017, when combined with the $1.5 million equity participation interest received,equals a loss of $3.0 million.

Note 9—Real Estate Owned and Held-For-Sale

Our real estate assets at both December 31, 2018 and 2017 were comprised of a hotel propertyand an office building.

Real Estate Owned

December 31, 2018 December 31, 2017Hotel Office Hotel Office

(in thousands) Property Building Total Property Building Total

Land . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,294 $ 4,509 $ 7,803 $ 3,294 $4,509 $ 7,803Building and intangible assets . . . . . . . . 31,066 2,010 33,076 30,699 2,010 32,709Less: Impairment loss . . . . . . . . . . . . . . (13,307) (2,500) (15,807) (13,307) (500) (13,807)Less: Accumulated depreciation and

amortization . . . . . . . . . . . . . . . . . . . (9,778) (848) (10,626) (9,228) (690) (9,918)Real estate owned, net . . . . . . . . . . . . . $ 11,275 $ 3,171 $ 14,446 $ 11,458 $5,329 $ 16,787

During 2018, 2017 and 2016, our hotel property had a weighted average occupancy rate ofapproximately 49%, 52% and 54%, respectively, a weighted average daily rate of approximately $108,$108 and $100, respectively, and weighted average revenue per available room of approximately $53,

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Note 9—Real Estate Owned and Held-For-Sale (Continued)

$56 and $54, respectively. The operation of a hotel property is seasonal with the majority of revenuesearned in the first two quarters of the calendar year.

Our office building was fully occupied by a single tenant until April 2017, when the lease expired.The building is currently vacant.

Through site visits and discussions with market participants, we determined that our real estateassets exhibited indicators of impairment and, based on our impairment analyses performed, werecorded impairment losses of $2.0 million, $3.2 million and $11.2 million in 2018, 2017 and 2016,respectively.

Our real estate assets had restricted cash balances totaling $0.5 million and $0.7 million atDecember 31, 2018 and 2017, respectively, due to escrow requirements.

Real Estate Held-For-Sale

In 2016, we sold our remaining multifamily properties and a hotel property that were classified asheld-for-sale for a total of $50.7 million and recognized a gain of $11.6 million. A portion of the salesproceeds were used to payoff the outstanding debt on the multifamily properties of $27.1 million. Theresults of operations for properties that were classified as held-for-sale during 2016 were de minimis.

Note 10—Goodwill and Other Intangible Assets

Goodwill. In 2017, we determined that the purchase price allocation related to the Acquisition in2016 incorrectly omitted a deferred tax liability related to the book-to-tax difference in the valueassigned to certain assets acquired. The impact of this omission to our 2016 consolidated financialstatements was a $4.9 million understatement of goodwill and a corresponding understatement of otherliabilities in our consolidated balance sheets. This omission had no impact on our results of operationsand was corrected in 2017, resulting in a $4.9 million increase to goodwill and a corresponding increasein other liabilities.

The following table sets forth the goodwill activity (in thousands):

Year Ended Year EndedDecember 31, 2018 December 31, 2017

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $56,626 $26,747Additions from internalization of management

team(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 25,000Purchase price allocation adjustment . . . . . . . . . . — 4,879Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . $56,626 $56,626

(1) Goodwill additions from the internalization of our management team completed in 2017were allocated $12.5 million each to our two reporting segments.

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Note 10—Goodwill and Other Intangible Assets (Continued)

Other Intangible Assets. The following table sets forth the other intangible assets activity (inthousands):

December 31, 2018 December 31, 2017Gross Gross

Carrying Accumulated Carrying AccumulatedValue Amortization Total Value Amortization Total

Finite-lived intangible assets:Broker relationships . . . . . . . . . . . . $25,000 $ (7,683) $17,317 $25,000 $(4,558) $20,442Borrower relationships . . . . . . . . . . 14,400 (3,540) 10,860 14,400 (2,100) 12,300Below market leases . . . . . . . . . . . . 4,010 (1,811) 2,199 4,010 (1,075) 2,935Acquired technology . . . . . . . . . . . . 900 (737) 163 900 (437) 463Infinite-lived intangible assets:Fannie Mae DUS license . . . . . . . . . 17,100 — 17,100 17,100 — 17,100Freddie Mac Program Plus license . . 8,700 — 8,700 8,700 — 8,700FHA license . . . . . . . . . . . . . . . . . . 3,200 — 3,200 3,200 — 3,200

$73,310 $(13,771) $59,539 $73,310 $(8,170) $65,140

The amortization expense recorded for these intangible assets were $5.6 million, $5.6 million and$2.6 million during 2018, 2017 and 2016, respectively.

At December 31, 2018, the weighted average remaining lives of our amortizable finite-livedintangible assets and the estimated amortization expense for each of the succeeding five years are asfollows ($ in thousands):

Estimated Amortization Expense for theWtd. Avg. Years Ending December 31,Remaining Life(in years) 2019 2020 2021 2022 2023

Finite-lived intangible assets:Broker relationships . . . . . . . . . . . . . . . . . 5.5 $3,125 $3,125 $3,125 $3,125 $3,125Borrower relationships . . . . . . . . . . . . . . . 7.5 1,440 1,440 1,440 1,440 1,440Below market leases . . . . . . . . . . . . . . . . . 4.8 737 684 126 126 126Acquired technology . . . . . . . . . . . . . . . . . 0.5 163 — — — —

6.2 $5,465 $5,249 $4,691 $4,691 $4,691

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Note 11—Debt Obligations

Credit Facilities and Repurchase Agreements

Borrowings under our credit facilities and repurchase agreements are as follows ($ in thousands):

December 31, 2018 December 31, 2017Debt Collateral Wtd. Debt Collateral Wtd.

Carrying Carrying Avg. Note Carrying Carrying Avg. NoteUPB(1) Value(1) Value Rate UPB(1) Value(1) Value Rate

Structured Business$375 million repurchase facility . . . . . $ 336,428 $ 334,696 $ 467,680 4.75% $103,818 $102,350 $145,850 3.90%$100 million repurchase facility . . . . . 71,017 70,837 98,597 4.31% 2,835 2,445 6,600 3.61%$75 million credit facility . . . . . . . . . 10,237 10,237 16,889 4.31% — — — —$75 million credit facility . . . . . . . . . — — — — 9,000 8,999 16,000 3.61%$50 million credit facility . . . . . . . . . 14,160 14,159 17,700 4.57% 32,560 32,538 40,700 3.61%$50 million credit facility . . . . . . . . . — — — — 3,700 3,581 4,625 4.88%$35.9 million credit facility . . . . . . . . 30,855 30,512 44,100 4.87% — — — —$25.5 million credit facility . . . . . . . . 18,552 18,552 34,000 5.07% 14,065 13,920 18,753 4.12%$25 million working capital facility . . . — — — — 10,000 10,000 — 4.12%$23.2 million credit facility . . . . . . . . 23,175 23,175 30,900 4.87% — — — —$20 million credit facility . . . . . . . . . 20,000 19,912 41,650 5.07% — — — —$17.4 million credit facility . . . . . . . . 12,462 12,462 15,844 4.97% — — — —$8 million credit facility . . . . . . . . . . 8,000 7,946 10,000 5.07% — — — —$7.5 million credit facility . . . . . . . . . — — — — 7,472 7,432 9,340 4.37%Repurchase facilities—securities(2) . . . 118,112 118,112 — 5.07% 53,938 53,938 — 4.45%$3 million master security agreement . 1,168 1,168 — 3.19% 1,834 1,834 — 3.21%$2.2 million master security agreement 1,678 1,678 — 4.66% — — — —

Structured Business total . . . . . . . . . $ 665,844 $ 663,446 $ 777,360 4.78% $239,222 $237,037 $241,868 4.02%

Agency Business$750 million ASAP agreement . . . . . . $ 104,619 $ 104,619 $ 104,619 3.55% $121,880 $121,880 $121,880 2.61%$500 million repurchase facility . . . . . 130,917 130,906 130,917 3.78% 24,873 24,827 24,873 2.91%$250 million credit facility . . . . . . . . 26,651 26,651 26,651 3.75% 23,785 23,785 23,785 2.86%$150 million credit facility . . . . . . . . 113,685 113,666 113,685 3.80% 21,821 21,802 21,821 2.96%$150 million credit facility . . . . . . . . 96,419 96,339 96,419 3.80% 99,357 99,242 99,357 2.91%

Agency Business total . . . . . . . . . . . $ 472,291 $ 472,181 $ 472,291 3.74% $291,716 $291,536 $291,716 2.78%

Consolidated total . . . . . . . . . . . . . $1,138,135 $1,135,627 $1,249,651 4.35% $530,938 $528,573 $533,584 3.34%

(1) The debt carrying value for the Structured Business at December 31, 2018 and 2017 was net of unamortized deferredfinance costs of $2.4 million and $2.2 million, respectively. The debt carrying value for the Agency Business atDecember 31, 2018 and 2017 was net of unamortized deferred finance costs of $0.1 million and $0.2 million, respectively.

(2) At December 31, 2018 and 2017, these facilities were collateralized by CLO bonds retained by us with an aggregateprincipal balance of $114.2 million and $61.0 million, respectively, and B Piece bonds with an aggregate carrying value of$76.4 million and $27.8 million, respectively.

Structured Business. We utilize credit facilities and repurchase agreements with various financialinstitutions to finance our Structured Business loans and investments as described below.

At December 31, 2018 and 2017, the weighted average interest rate for the credit facilities andrepurchase agreements of our Structured Business, including certain fees and costs, such as structuring,commitment, non-use and warehousing fees, was 5.07% and 4.51%, respectively. The leverage on ourloan and investment portfolio financed through our credit facilities and repurchase agreements,excluding the securities repurchase facilities, working capital line of credit and the security agreements

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Note 11—Debt Obligations (Continued)

used to finance leasehold and capital expenditure improvements at our corporate office, was 70% and72% at December 31, 2018 and 2017, respectively.

We have a $300.0 million repurchase facility that bears interest at a rate of 175 basis points overLIBOR on multifamily senior mortgage loans, 350 basis points over LIBOR on junior mortgage loansand matures in March 2020, with a one-year extension option. The committed amount under thefacility was temporarily increased $75.0 million to $375.0 million, which expires in March 2019. If theestimated market value of the loans financed in this facility decrease, we may be required to pay downborrowings under this facility.

We have a $100.0 million repurchase facility to finance multifamily bridge loans that bears interestat a rate ranging from 175 basis points to 200 basis points over LIBOR (depending on the class of loanfinanced) and matures in June 2019, with a one-year extension option. The facility has a maximumadvance rate of 80%.

We have a $75.0 million credit facility to finance multifamily bridge loans that was scheduled tomature in February 2019 and bears interest at 175 basis points over LIBOR. In February 2019, wetemporarily extended the maturity date to March 2019, with a one-month extension option, and arecurrently in negotiations to further amend the agreement. This facility includes a $25.0 million sublimitto finance healthcare related loans at an interest rate ranging from 212.5 basis points to 250 basispoints over LIBOR depending on the type of healthcare facility financed and the advance rate. Thefacility has a maximum advance rate of 75% on multifamily bridge loans and 65% on healthcarerelated loans.

We have another $75.0 million credit facility to finance bridge loans that bears interest at a rate of200 basis points over LIBOR and matures in June 2019. The facility has a maximum advance rate of70% to 75%, depending on the property type.

We have a $50.0 million credit facility to finance multifamily loans that bears interest at a rate of200 basis points over LIBOR and is scheduled to mature in February 2019. We are currently innegotiations to amend the agreement and extend its maturity. This facility has a maximum advance rateof 80%.

We have another $50.0 million credit facility that bears interest at a rate ranging from 250 basispoints to 325 basis points over LIBOR, depending on the type of healthcare facility financed, andmatures in September 2019. The facility includes two one-year extension options and has a maximumadvance rate of 80%.

In the fourth quarter of 2018, we entered into a $35.9 million credit facility to finance a hotelproperty bridge loan. The facility bears interest at a rate of 230 basis points over LIBOR and maturesin May 2020, with a six-month extension option.

We have a $25.5 million credit facility used to finance a multifamily bridge loan. The facility bearsinterest at a rate of 250 basis points over LIBOR and matures in October 2019.

We have a $25.0 million unsecured working capital line of credit that bears interest at a rate of225 basis points over LIBOR. This line is scheduled to mature in June 2019 and is renewable annually.

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We have a $23.2 million credit facility used to finance a self storage bridge loan. The facility bearsinterest at a rate of 230 basis points over LIBOR and matures in February 2020, with a one-yearextension option.

We have a $20.0 million credit facility used to finance a healthcare facility bridge loan. The facilitybears interest at a rate of 250 basis points over LIBOR and matures in March 2020, with a one-yearextension option.

We have a $17.4 million credit facility used to finance a multifamily bridge loan. The facility bearsinterest at a rate of 240 basis points over LIBOR and matures in June 2020, with a one-year extensionoption.

We have an $8.0 million credit facility used to finance a healthcare facility bridge loan. The facilitybears interest at a rate of 250 basis points over LIBOR and matures in August 2021.

We had a $7.5 million credit facility used to finance a healthcare related bridge loan. The facilitybore interest at a rate of 275 basis points over LIBOR and in September 2018 the loan collateralizingthis facility paid off and we simultaneously repaid this facility.

We have two uncommitted repurchase facilities that are used to finance securities we retained inconnection with our CLOs and our purchases of B Piece bonds from SBL program securitizations. Thefacilities bear interest at rates ranging from 175 basis points to 315 basis points over LIBOR and haveno stated maturity date.

We have two notes payable under a master security agreement that was used to finance leaseholdimprovements to our corporate office, which were assumed as part of the Acquisition. The two notesbear interest at a weighted average fixed rate of 3.19%, require monthly amortization payments andmature in 2020.

We have a master security agreement to finance certain capital expenditures. We have a$2.2 million note payable under this agreement which bears interest at a fixed rate of 4.60%, requiresmonthly amortization payments and matures in March 2021.

Agency Business. We utilize credit facilities with various financial institutions to financesubstantially all of our loans held-for-sale as described below.

In the fourth quarter of 2018, we amended our Multifamily As Soon as Pooled " Plus (‘‘ASAP’’)agreement with Fannie Mae increasing the available credit to $750.0 million from $500.0 million. TheASAP agreement provides us with a warehousing credit facility for mortgage loans that are to be soldto Fannie Mae and serviced under the Fannie Mae DUS program. The ASAP agreement is not acommitted line, has no expiration date and bears interest at a rate of 105 basis points over LIBOR,with a LIBOR Floor of 0.35%.

In the fourth quarter of 2018, we amended our $200.0 million repurchase facility increasing thecommitted amount $300.0 million to $500.0 million. The facility also includes an accordion feature toincrease the committed amount to $750.0 million, which is available through the maturity date. Thefacility bears interest at a rate of 127.5 basis points over LIBOR and matures in August 2019. Thefinancial institution that provided this facility has a security interest in the underlying mortgage notesthat serve as collateral for this facility.

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We have a $100.0 million repurchase facility that bears interest at a rate of 125 basis points overLIBOR and matures in June 2019. The committed amount under the facility was temporarily increased$150.0 million to $250.0 million, which expired in January 2019. The financial institution that providedthis facility has a security interest in the underlying mortgage notes that serve as collateral for thisfacility.

We have a $150.0 million credit facility that bears interest at a rate of 130 basis points overLIBOR that was scheduled to mature in January 2019. In January 2019, we amended this facility toextend the maturity date one year to January 2020 and reduce the interest rate 10 basis points to120 basis points over LIBOR. The financial institution that provided this facility has a security interestin the underlying mortgage notes that serve as collateral for this facility.

We have another $150.0 million credit facility that bears interest at a rate of 130 basis points overLIBOR and matures in July 2019. The financial institution that provided this facility has a securityinterest in the underlying mortgage notes that serve as collateral for this facility.

We have a $50.0 million letter of credit facility with a financial institution to secure obligationsunder the Fannie Mae DUS program and the Freddie Mac SBL program. The facility bears interest ata fixed rate of 2.875%, matures in September 2020 and is primarily collateralized by our servicingrevenue as approved by Fannie Mae and Freddie Mac. The facility includes a $5.0 million sublimit foran obligation under the Freddie Mac SBL program. At December 31, 2018, the letters of creditoutstanding include $44.0 million for the Fannie Mae DUS program and $5.0 million for the FreddieMac SBL program.

CLOs

We account for our CLO transactions on our consolidated balance sheet as financing facilities. OurCLOs are VIEs for which we are the primary beneficiary and are consolidated in our financialstatements. The investment grade tranches are treated as secured financings, and are non-recourse tous.

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Note 11—Debt Obligations (Continued)

Borrowings and the corresponding collateral under our CLOs are as follows ($ in thousands):

Collateral(3)Loans CashDebt

Face Carrying Wtd. Avg. Carrying RestrictedValue Value(1) Rate(2) UPB Value Cash(4)

December 31, 2018CLO X . . . . . . . . . . . . . . . . $ 441,000 $ 436,384 4.01% $ 539,007 $ 536,869 $ 20,993CLO IX . . . . . . . . . . . . . . . . 356,400 352,244 3.92% 440,906 439,691 20,094CLO VIII . . . . . . . . . . . . . . . 282,874 279,857 3.87% 354,713 353,574 10,287CLO VII . . . . . . . . . . . . . . . 279,000 276,527 4.56% 325,057 324,195 30,725CLO VI . . . . . . . . . . . . . . . . 250,250 248,536 5.05% 279,348 278,364 41,404Total CLOs . . . . . . . . . . . . . . $1,609,524 $1,593,548 4.22% $1,939,031 $1,932,693 $123,503

December 31, 2017CLO IX . . . . . . . . . . . . . . . . $ 356,400 $ 351,042 2.97% $ 372,350 $ 371,236 $ 88,650CLO VIII . . . . . . . . . . . . . . . 282,874 278,606 2.92% 364,838 363,339 162CLO VII . . . . . . . . . . . . . . . 279,000 275,331 3.61% 346,524 345,220 13,476CLO VI . . . . . . . . . . . . . . . . 250,250 247,470 4.10% 314,382 313,582 10,618CLO V . . . . . . . . . . . . . . . . 267,750 265,973 4.06% 347,797 346,803 2,203Total CLOs . . . . . . . . . . . . . . $1,436,274 $1,418,422 3.48% $1,745,891 $1,740,180 $115,109

(1) Debt carrying value is net of $16.0 million and $17.9 million of deferred financing fees atDecember 31, 2018 and 2017, respectively.

(2) At December 31, 2018 and 2017, the aggregate weighted average note rate for our CLOs,including certain fees and costs, was 4.73% and 4.08%, respectively.

(3) As of December 31, 2018 and 2017, there was no collateral at risk of default or deemed to be a‘‘credit risk’’ as defined by the CLO indenture.

(4) Represents restricted cash held for principal repayments as well as for reinvestment in the CLOs.Does not include restricted cash related to interest payments, delayed fundings and expenses.

CLO X. In June 2018, we completed CLO X, issuing seven tranches of CLO notes throughtwo newly-formed wholly-owned subsidiaries totaling $494.2 million. Of the total CLO notes issued,$441.0 million were investment grade notes issued to third party investors and $53.2 million were belowinvestment grade notes retained by us. As of the CLO closing date, the notes were secured by aportfolio of loan obligations with a face value of $501.9 million, consisting primarily of bridge loansthat were contributed from our existing loan portfolio. The financing has a stated maturity date in June2028 and a four-year replacement period that allows the principal proceeds and sale proceeds (if any)of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to thesatisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balancewill be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included$58.1 million for the purpose of acquiring additional loan obligations for a period of up to 120 daysfrom the CLO closing date, which were subsequently utilized, resulting in the issuer owning loan

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Note 11—Debt Obligations (Continued)

obligations with a face value of $560.0 million, representing leverage of 79%. We retained a residualinterest in the portfolio with a notional amount of $119.0 million, including the $53.2 million belowinvestment grade notes. The notes had an initial weighted average interest rate of 1.45% plusone-month LIBOR and interest payments on the notes are payable monthly.

CLO IX. In December 2017, we completed CLO IX, issuing five tranches of CLO notes throughtwo newly-formed wholly-owned subsidiaries totaling $388.2 million. Of the total CLO notes issued,$356.4 million were investment grade notes issued to third party investors and $31.8 million were belowinvestment grade notes retained by us. As of the CLO closing date, the notes were secured by aportfolio of loan obligations with a face value of $387.3 million, consisting primarily of bridge loansthat were contributed from our existing loan portfolio. The financing has a stated maturity date inDecember 2027 and a three-year replacement period that allows the principal proceeds and saleproceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations,subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstandingdebt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securitiesalso included $92.7 million for the purpose of acquiring additional loan obligations for a period of upto 120 days from the CLO closing date, which were subsequently utilized, resulting in the issuer owningloan obligations with a face value of $480.0 million, representing leverage of 74%. We retained aresidual interest in the portfolio with a notional amount of $123.6 million, including the $31.8 millionbelow investment grade notes. The notes had an initial weighted average interest rate of 1.36% plusLIBOR and interest payments on the notes are payable monthly.

CLO VIII. In August 2017, we completed CLO VIII, issuing six tranches of CLO notes throughtwo newly-formed wholly-owned subsidiaries totaling $312.1 million. Of the total CLO notes issued,$282.9 million were investment grade notes issued to third party investors and $29.2 million were belowinvestment grade notes retained by us. As of the CLO closing date, the notes were secured by aportfolio of loan obligations with a face value of $293.7 million, consisting primarily of bridge loansthat were contributed from our existing loan portfolio. The financing has a stated maturity date inAugust 2027 and a three-year replacement period that allows the principal proceeds and sale proceeds(if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject tothe satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debtbalance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities alsoincluded $71.3 million for the purpose of acquiring additional loan obligations for a period of up to120 days from the CLO closing date, which were subsequently utilized, resulting in the issuer owningloan obligations with a face value of $365.0 million, representing leverage of 78%. We retained aresidual interest in the portfolio with a notional amount of $82.1 million, including the $29.2 millionbelow investment grade notes. The notes had an initial weighted average interest rate of 1.31% plusLIBOR and interest payments on the notes are payable monthly.

CLO VII. In April 2017, we completed CLO VII, issuing to third party investors three tranches ofinvestment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $279.0 million. Asof the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of$296.2 million, consisting primarily of bridge loans that were contributed from our existing loanportfolio. The financing has a stated maturity date in April 2027 and a three-year replacement periodthat allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in

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qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in theindenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, theproceeds of the issuance of the securities also included $63.8 million for the purpose of acquiringadditional loan obligations for a period of up to 120 days from the CLO closing date, which weresubsequently utilized, resulting in the issuer owning loan obligations with a face value of $360.0 million,representing leverage of 78%. We retained a residual interest in the portfolio with a notional amountof $81.0 million. The notes had an initial weighted average interest rate of 1.99% plus LIBOR andinterest payments on the notes are payable monthly.

CLO VI. In August 2016, we completed CLO VI, issuing to third party investors three tranches ofinvestment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $250.3 million. Asof the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of$275.4 million, consisting primarily of bridge loans that were contributed from our existing loanportfolio. The financing has a stated maturity date in September 2026 and a three year replacementperiod that allows the principal proceeds and sale proceeds (if any) of the loan obligations to bereinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions setforth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid.Initially, the proceeds of the issuance of the securities also included $49.6 million for the purpose ofacquiring additional loan obligations for a period of up to 120 days from the closing date of the CLO,which were subsequently utilized, resulting in the issuer owning loan obligations with a face value of$325.0 million, representing leverage of 77%. We retained a residual interest in the portfolio with anotional amount of $74.8 million. The notes had an initial weighted average interest rate of 2.48% plusLIBOR and interest payments on the notes are payable monthly.

CLO V. In June 2018, we unwound CLO V, redeeming $267.8 million of outstanding notes whichwere repaid primarily from the refinancing of the remaining assets within our existing financingfacilities (including CLO X), as well as with cash held by CLO V, and expensed $1.3 million of deferredfinancing fees into interest expense on the consolidated statements of income.

CLO IV. In September 2017, we unwound CLO IV, redeeming $219.0 million of our outstandingnotes which were repaid primarily from the refinancing of the remaining assets within our existingfinancing facilities (including CLO VIII), as well as with cash held by CLO IV, and expensed$1.1 million of deferred financing fees into interest expense on the consolidated statements of income.

CLO III. In December 2016, we unwound CLO III, redeeming $281.3 million of our outstandingnotes which were repaid primarily from the refinancing of the remaining assets within our financingfacilities, as well as with cash held by the CLO, and expensed $1.0 million of deferred fees into interestexpense in the consolidated statements of income.

Luxembourg Debt Fund

In November 2017, we formed a $100.0 million Debt Fund and issued $70.0 million of floating ratenotes to third party investors which bore an initial interest rate of 4.15% over LIBOR. The notesmature in 2025 and we retained a $30.0 million equity interest in the Debt Fund. The Debt Fund is aVIE for which we are the primary beneficiary and is consolidated in our financial statements. The DebtFund is secured by a portfolio of loan obligations and cash with a face value of $100.0 million, which

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includes first mortgage bridge loans, senior participation interests in first mortgage bridge loans,subordinate participation interest in first mortgage bridge loans and participation interests in mezzanineloans. The Debt Fund allows, for a period of three years, principal proceeds from portfolio assets to bereinvested in qualifying replacement assets, subject to certain conditions.

Borrowings and the corresponding collateral under our Debt Fund are as follows ($ in thousands):

Collateral(3)Loans CashDebt

Face Carrying Wtd. Avg. Carrying RestrictedPeriod Value Value(1) Rate(2) UPB Value Cash(4)

December 31, 2018 . . . . . . . . . . . . . . . . . $70,000 $68,183 6.75% $69,186 $68,924 $30,814

December 31, 2017 . . . . . . . . . . . . . . . . . $70,000 $68,084 5.79% $96,995 $96,564 $ 3,005

(1) Debt carrying value is net of $1.8 million and $1.9 million of deferred financing fees atDecember 31, 2018 and 2017, respectively.

(2) At December 31, 2018 and 2017, the aggregate weighted average note rate, including certain feesand costs, was 7.49% and 6.05%, respectively.

(3) At both December 31, 2018 and 2017, there was no collateral at risk of default or deemed to be a‘‘credit risk.’’

(4) Represents restricted cash held for reinvestment. Excludes restricted cash related to interestpayments, delayed fundings and expenses.

Senior Unsecured Notes

In March 2018, we issued $100.0 million aggregate principal amount of 5.625% senior unsecurednotes due in May 2023 (the ‘‘Initial Notes’’) in a private placement, and, in May 2018, we issued anadditional $25.0 million (the ‘‘Reopened Notes’’ and, together with the Initial Notes, the ‘‘5.625%Notes,’’) which brought the aggregate outstanding principal amount to $125.0 million. The ReopenedNotes are fully fungible with, and rank equally in right of payment with the Initial Notes. We receivedtotal proceeds of $122.3 million from the issuances, after deducting the underwriting discount and otheroffering expenses. We used the net proceeds from the Initial Notes to fully redeem our 7.375% Notestotaling $97.9 million and the net proceeds from the Reopened Notes to make investments and forgeneral corporate purposes. The 5.625% Notes are unsecured and can be redeemed by us at any timeprior to April 1, 2023, at a redemption price equal to 100% of the aggregate principal amount, plus a‘‘make-whole’’ premium and accrued and unpaid interest. We have the right to redeem the 5.625%Notes on or after April 1, 2023, at a redemption price equal to 100% of the aggregate principalamount, plus accrued and unpaid interest. The interest is paid semiannually in May and Novemberstarting in November 2018. At December 31, 2018, the debt carrying value of the 5.625% Notes was$122.5 million, net of $2.5 million of deferred financing fees, and the weighted average note rate was6.08%, including certain fees and costs.

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At December 31, 2017, the debt carrying value of our 7.375% Notes was $95.3 million, which wasnet of $2.6 million of deferred financing fees, and the weighted average note rate was 8.16%.

Convertible Senior Unsecured Notes

In July 2018, we issued $264.5 million in aggregate principal amount of 5.25% Convertible Notesthrough two separate private placement offerings, which includes the exercised purchaser’s totalover-allotment option of $34.5 million. The 5.25% Convertible Notes pay interest semiannually inarrears and are scheduled to mature in July 2021, unless earlier converted or repurchased by theholders pursuant to their terms. The initial conversion rates of the two offerings ($115.0 million issuedon July 3, 2018 and $149.5 million issued on July 20, 2018) were 86.9943 shares and 77.8331 shares ofcommon stock per $1,000 of principal, respectively, representing a conversion price of $11.50 per shareand $12.85 per share of common stock, respectively. At December 31, 2018, the conversion rates of thetwo offerings ($115.0 million issued on July 3, 2018 and $149.5 million issued on July 20, 2018) were88.3681 shares and 79.0623 shares of common stock per $1,000 of principal, respectively, representing aconversion price of $11.32 per share and $12.65 per share of common stock, respectively.

We received proceeds totaling $256.1 million from the offerings of our 5.25% Convertible Notes,net of the underwriter’s discount and fees, which is being amortized through interest expense over thelife of such notes. We used the net proceeds from the issuance primarily for the initial exchange of$127.6 million of our 5.375% Convertible Notes and $99.8 million of our 6.50% Convertible Notes fora combination of $219.8 million in cash (which includes accrued interest) and 6,820,196 shares of ourcommon stock. The remaining net proceeds were used for general corporate purposes. During 2018, werecorded a loss on extinguishment of debt of $5.0 million in connection with these exchanges, whichincluded an inducement charge of $1.1 million.

At December 31, 2018, there were $5.5 million and $0.1 million aggregate principal amountremaining of our 5.375% Convertible Notes and 6.50% Convertible Notes, respectively. The initialconversion rates of the 5.375% Convertible Notes and 6.50% Convertible Notes were 107.7122 sharesand 119.3033 shares, respectively, of common stock per $1,000 of principal, which represented aconversion price of $9.28 per share and $8.38 per share of common stock, respectively. AtDecember 31, 2018, the 5.375% Convertible Notes and 6.50% Convertible Notes had conversion ratesof 111.4750 shares and 126.1380 shares, respectively, of common stock per $1,000 of principal, whichrepresented a conversion price of $8.97 per share and $7.93 per share of common stock, respectively.The 5.375% Convertible Notes and 6.50% Convertible Notes pay interest semiannually in arrears andhave scheduled maturity dates in November 2020 and October 2019, respectively, unless earlierconverted or repurchased by the holders pursuant to their terms.

Our convertible senior unsecured notes are not redeemable by us prior to their maturities and areconvertible into, at our election, cash, shares of our common stock or a combination of both, subject tothe satisfaction of certain conditions and during specified periods. The conversion rates are subject toadjustment upon the occurrence of certain specified events and the holders may require us torepurchase all, or any portion, of their notes for cash equal to 100% of the principal amount, plusaccrued and unpaid interest, if we undergo a fundamental change specified in the agreements. Weintend to settle the principal balance of our convertible debt in cash and have not assumed sharesettlement of the principal balance for purposes of computing EPS. At the time of issuance, there is no

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precedent or policy that would indicate that we would settle the principal in shares or the conversionspread in cash.

Accounting guidance requires that convertible debt instruments with cash settlement features,including partial cash settlement, account for the liability component and equity component (conversionfeature) of the instrument separately. The initial value of the liability component reflects the presentvalue of the discounted cash flows using the nonconvertible debt borrowing rate at the time of theissuance. The debt discount represents the difference between the proceeds received from the issuanceand the initial carrying value of the liability component, which is accreted back to the notes principalamount through interest expense over the term of the notes, which was 2.49 years and 2.41 years atDecember 31, 2018 and 2017, respectively, on a weighted average basis.

The UPB, unamortized discount and net carrying amount of the liability and equity components ofour convertible notes were as follows (in thousands):

EquityLiability Component Component

Unamortized Unamortized Deferred Net Carrying Net CarryingPeriod UPB Debt Discount Financing Fees Value Value

December 31, 2018 . . . . . . . . . $270,057 $8,229 $7,060 $254,768 $9,436

December 31, 2017 . . . . . . . . . $243,750 $5,742 $6,721 $231,287 $6,733

During 2018, we incurred total aggregate interest expense on the notes of $21.1 million, of which$13.4 million, $4.8 million and $2.9 million related to the cash coupon, amortization of the deferredfinancing fees and of the debt discount, respectively. During 2017, we incurred total aggregate interestexpense on the notes of $10.1 million, of which $7.4 million, $1.6 million and $1.1 million related to thecash coupons, amortization of the deferred financing fees and of the debt discount, respectively.Including the amortization of the deferred financing fees and debt discount, our weighted average totalcost of the notes was 7.45% and 7.96% at December 31, 2018 and 2017, respectively.

Junior Subordinated Notes

In 2017, we purchased, at a discount, $20.9 million of our junior subordinated notes with acarrying value of $19.8 million and recorded a gain on extinguishment of debt of $7.1 million. As aresult, we settled our related equity investment and extinguished $21.5 million of notes. The carryingvalue of borrowings under our junior subordinated notes were $140.3 million and $139.6 million atDecember 31, 2018 and 2017, respectively, which is net of a deferred amount of $12.0 million and$12.5 million, respectively, (which is amortized into interest expense over the life of the notes) anddeferred financing fees of $2.1 million and $2.2 million, respectively. These notes have maturitiesranging from March 2034 through April 2037 and pay interest quarterly at a floating rate based onLIBOR. The current weighted average note rate was 5.66% and 4.53% at December 31, 2018 and 2017,respectively. Including certain fees and costs, the weighted average note rate was 5.75% and 4.63% atDecember 31, 2018 and 2017, respectively.

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Related Party Financing

In connection with the Acquisition, we entered into a five year $50.0 million preferred equityinterest financing agreement with ACM to finance a portion of the aggregate purchase price. AtDecember 31, 2017, the outstanding principal balance was $50.0 million. In January 2018, we paid$50.0 million in full satisfaction of this debt. During 2018 and 2017, we recorded interest expense of$0.3 million and $3.8 million, respectively.

Debt Covenants

Credit Facilities and Repurchase Agreements. The credit facilities and repurchase agreementscontain various financial covenants, including, but not limited to, minimum liquidity requirements,minimum net worth requirements, as well as certain other debt service coverage ratios, debt to equityratios and minimum servicing portfolio tests. We were in compliance with all financial covenants andrestrictions at December 31, 2018.

CLOs. Our CLO vehicles contain interest coverage and asset overcollateralization covenants thatmust be met as of the waterfall distribution date in order for us to receive such payments. If we failthese covenants in any of our CLOs, all cash flows from the applicable CLO would be diverted torepay principal and interest on the outstanding CLO bonds and we would not receive any residualpayments until that CLO regained compliance with such tests. Our CLOs were in compliance with allsuch covenants as of December 31, 2018, as well as on the most recent determination dates in January2019. In the event of a breach of the CLO covenants that could not be cured in the near-term, wewould be required to fund our non-CLO expenses, including employee costs, distributions required tomaintain our REIT status, debt costs, and other expenses with (i) cash on hand, (ii) income from anyCLO not in breach of a covenant test, (iii) income from real property and loan assets, (iv) sale ofassets, or (v) accessing the equity or debt capital markets, if available. We have the right to curecovenant breaches which would resume normal residual payments to us by purchasing non-performingloans out of the CLOs. However, we may not have sufficient liquidity available to do so at such time.

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A summary of our CLO compliance tests as of the most recent determination dates in January2019 is as follows:

Cash Flow Triggers CLO VI CLO VII CLO VIII CLO IX CLO X

Overcollateralization(1)

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.68% 126.98%

Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128.87% 128.03% 128.03% 133.68% 125.98%

Pass / Fail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pass Pass Pass Pass Pass

Interest Coverage(2)

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180.38% 207.52% 263.21% 252.03% 234.48%

Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120.00% 120.00% 120.00% 120.00% 120.00%

Pass / Fail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pass Pass Pass Pass Pass

(1) The overcollateralization ratio divides the total principal balance of all collateral in the CLO bythe total principal balance of the bonds associated with the applicable ratio. To the extent an assetis considered a defaulted security, the asset’s principal balance for purposes of theovercollateralization test is the lesser of the asset’s market value or the principal balance of thedefaulted asset multiplied by the asset’s recovery rate which is determined by the rating agencies.Rating downgrades of CLO collateral will generally not have a direct impact on the principalbalance of a CLO asset for purposes of calculating the CLO overcollateralization test unless therating downgrade is below a significantly low threshold (e.g. CCC#) as defined in each CLOvehicle.

(2) The interest coverage ratio divides interest income by interest expense for the classes senior tothose retained by us.

A summary of our CLO overcollateralization ratios as of the determination dates subsequent toeach quarter is as follows:

Determination(1) CLO VI CLO VII CLO VIII CLO IX CLO X

January 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.68% 126.98%October 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.68% 126.98%July 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.68% 126.98%April 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.69% —January 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129.87% 129.03% 129.03% 134.68% —

(1) The table above represents the quarterly trend of our overcollateralization ratio, however, theCLO determination dates are monthly and we were in compliance with this test for all periodspresented.

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The ratio fluctuates based on the performance of the underlying assets, transfers of assets into theCLOs prior to expiration of their respective replenishment dates, purchase or disposal of otherinvestments, and loan payoffs. No payment due under the junior subordinated indentures may be paidif there is a default under any senior debt and the senior lender has sent notice to the trustee. Thejunior subordinated indentures are also cross-defaulted with each other.

Note 12—Allowance for Loss-Sharing Obligations

Our allowance for loss-sharing obligations related to the Fannie Mae DUS program is as follows(in thousands):

Year EndedDecember 31,

2018 2017

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,511 $32,408Provision for loss sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,126 6,358Provision reversal for loan repayments . . . . . . . . . . . . . . . . . . . . (3,283) (6,617)Charge-offs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) (1,638)Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,298 $30,511

When we settle a loss under the DUS loss-sharing model, the net loss is charged-off against thepreviously recorded loss-sharing obligation. The settled loss is often net of any previously advancedprincipal and interest payments in accordance with the DUS program, which are reflected as reductionsto the proceeds needed to settle losses. At both December 31, 2018 and 2017, we had outstandingadvances of $0.1 million, which were netted against the allowance for loss-sharing obligations.

At December 31, 2018 and 2017, our allowance for loss-sharing obligations represented 0.25% and0.24%, respectively, of the Fannie Mae servicing portfolio.

At December 31, 2018 and 2017, the maximum quantifiable liability associated with our guaranteesunder the Fannie Mae DUS agreement was $2.46 billion and $2.24 billion, respectively. The maximumquantifiable liability is not representative of the actual loss we would incur. We would be liable for thisamount only if all of the loans we service for Fannie Mae, for which we retain some risk of loss, wereto default and all of the collateral underlying these loans was determined to be without value at thetime of settlement.

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Note 13—Derivative Financial Instruments

A summary of our non-qualifying derivative financial instruments held by our Agency Business isas follows ($ in thousands):

December 31, 2018Notional Value Fair Value

Notional Derivative DerivativeDerivative Count Value Balance Sheet Location Assets Liabilities

Rate Lock Commitments . . . . 4 $ 18,161 Other Assets/ Other Liabilities $ 324 $ (95)Forward Sale Commitments . . 90 491,125 Other Assets/ Other Liabilities 5,789 (637)

$509,286 $6,113 $(732)

December 31, 2017

Rate Lock Commitments . . . . 3 $ 38,578 Other Assets/ Other Liabilities $276 $ (278)Forward Sale Commitments . . 75 330,827 Other Assets/ Other Liabilities 408 (1,028)

$369,405 $684 $(1,306)

We enter into contractual commitments to originate and sell mortgage loans at fixed prices withfixed expiration dates. The commitments become effective when the borrower ‘‘rate locks’’ a specifiedinterest rate within time frames established by us. All potential borrowers are evaluated forcreditworthiness prior to the extension of the commitment. Market risk arises if interest rates moveadversely between the time of the rate lock by the borrower and the sale date of the loan to aninvestor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments toborrowers, we enter into a forward sale commitment with the investor simultaneous with the rate lockcommitment with the borrower. The forward sale contract locks in an interest rate and price for thesale of the loan. The terms of the contract with the investor and the rate lock with the borrower arematched in substantially all respects, with the objective of eliminating interest rate risk to the extentpractical. Sale commitments with the investors have an expiration date that is longer than our relatedcommitments to the borrower to allow, among other things, for closing of the loan and processing ofpaperwork to deliver the loan into the sale commitment.

These commitments meet the definition of a derivative and are recorded at fair value, includingthe effects of interest rate movements which are reflected as a component of other income, net in theconsolidated statements of income. The estimated fair value of rate lock commitments also includes thefair value of the expected net cash flows associated with the servicing of the loan which is recorded asincome from MSRs in the consolidated statements of income. During 2018, 2017 and 2016, werecorded net gains of $6.0 million, net losses of $1.4 million and net gains of $0.5 million, respectively,from changes in the fair value of these derivatives in other income, net and $98.8 million, $76.8 millionand $44.9 million, respectively, of income from MSRs. See Note 14—Fair Value for details.

Note 14—Fair Value

Fair value estimates are dependent upon subjective assumptions and involve significantuncertainties resulting in variability in estimates with changes in assumptions. The following table

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summarizes the principal amounts, carrying values and the estimated fair values of our financialinstruments (in thousands):

December 31, 2018 December 31, 2017Principal / Principal /Notional Carrying Estimated Notional Carrying EstimatedAmount Value Fair Value Amount Value Fair Value

Financial assets:Loans and investments, net . . . . $3,283,342 $3,200,145 $3,249,499 $2,652,538 $2,579,127 $2,652,520Loans held-for-sale, net . . . . . . . 472,964 481,664 489,546 292,249 297,443 302,883Capitalized mortgage servicing

rights, net . . . . . . . . . . . . . . . n/a 273,770 322,463 n/a 252,608 286,073Securities held-to-maturity, net . . 103,515 76,363 79,097 40,566 27,837 28,439Derivative financial instruments . 400,661 6,113 6,113 77,984 684 684

Financial liabilities:Credit and repurchase facilities . . $1,138,135 $1,135,627 $1,135,774 $ 530,938 $ 528,573 $ 529,992Collateralized loan obligations . . 1,609,524 1,593,548 1,588,989 1,436,274 1,418,422 1,436,871Debt fund . . . . . . . . . . . . . . . . 70,000 68,183 70,154 70,000 68,084 70,000Senior unsecured notes . . . . . . . 125,000 122,484 123,750 97,860 95,280 99,582Convertible senior unsecured

notes, net . . . . . . . . . . . . . . . 270,057 254,768 267,324 243,750 231,287 254,335Junior subordinated notes . . . . . 154,336 140,259 95,873 154,336 139,590 94,215Related party financing . . . . . . . — — — 50,000 50,000 49,682Derivative financial instruments . 108,625 732 732 291,421 1,306 1,306

Assets and liabilities disclosed at fair value are categorized based upon the level of judgmentassociated with the inputs used to measure their fair value. Hierarchical levels directly related to theamount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are asfollows:

Level 1—Inputs are unadjusted and quoted prices exist in active markets for identical assets orliabilities, such as government, agency and equity securities.

Level 2—Inputs (other than quoted prices included in Level 1) are observable for the asset orliability through correlation with market data. Level 2 inputs may include quoted market prices for asimilar asset or liability, interest rates and credit risk. Examples include non-government securities,certain mortgage and asset-backed securities, certain corporate debt and certain derivative instruments.

Level 3—Inputs reflect our best estimate of what market participants would use in pricing theasset or liability and are based on significant unobservable inputs that require a considerable amount ofjudgment and assumptions. Examples include certain mortgage and asset-backed securities, certaincorporate debt and certain derivative instruments.

Determining which category an asset or liability falls within the hierarchy requires significantjudgment and we evaluate our hierarchy disclosures each quarter.

The following is a description of the valuation techniques used to measure fair value and thegeneral classification of these instruments pursuant to the fair value hierarchy.

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December 31, 2018

Note 14—Fair Value (Continued)

Loans and investments, net. Fair values of loans and investments that are not impaired areestimated using Level 3 inputs based on direct capitalization rate and discounted cash flowmethodologies using discount rates, which, in our opinion, best reflect current market interest rates thatwould be offered for loans with similar characteristics and credit quality. Fair values of impaired loansand investments are estimated using Level 3 inputs that require significant judgments, which includeassumptions regarding discount rates, capitalization rates, creditworthiness of major tenants, occupancyrates, availability of financing, exit plan and other factors.

Loans held-for-sale, net. Consists of originated loans that are generally transferred or sold within60 days of loan funding, and are valued using pricing models that incorporate observable inputs fromcurrent market assumptions or a hypothetical securitization model utilizing observable market datafrom recent securitization spreads and observable pricing of loans with similar characteristics (Level 2).Fair value includes the fair value allocated to the associated future MSRs and is calculated pursuant tothe valuation techniques described below for capitalized mortgage servicing rights, net (Level 3).

Capitalized mortgage servicing rights, net. Fair values are estimated using Level 3 inputs based ondiscounted future net cash flow methodology. The fair value of MSRs carried at amortized cost areestimated using a process that involves the use of independent third-party valuation experts, supportedby commercially available discounted cash flow models and analysis of current market data. The keyinputs used in estimating fair value include the contractually specified servicing fees, prepayment speedof the underlying loans, discount rate, annual per loan cost to service loans, delinquency rates, latecharges and other economic factors.

Securities held-to-maturity, net. Fair values are approximated using Level 3 inputs based on currentmarket quotes received from financial sources that trade such securities and are based on prevailingmarket data and, in some cases, are derived from third party proprietary models based on wellrecognized financial principles and reasonable estimates about relevant future market conditions.

Derivative financial instruments. The fair values of rate lock and forward sale commitments areestimated using valuation techniques, which include internally-developed models developed based onchanges in the U.S. Treasury rate and other observable market data (Level 2). The fair value of ratelock commitments includes the fair value of the expected net cash flows associated with the servicing ofthe loans, see capitalized mortgage servicing rights, net above for details on the applicable valuationtechnique (Level 3). We also consider the impact of counterparty non-performance risk whenmeasuring the fair value of these derivatives. Given the credit quality of our counterparties, the shortduration of interest rate lock commitments and forward sale contracts, and our historical experience,the risk of nonperformance by our counterparties is not significant.

Credit facilities and repurchase agreements. Fair values for credit facilities and repurchaseagreements of the Structured Business are estimated at Level 3 using discounted cash flowmethodology, using discount rates, which, in our opinion, best reflect current market interest rates forfinancing with similar characteristics and credit quality. The majority of our credit facilities andrepurchase agreement for the Agency Business bear interest at rates that are similar to those availablein the market currently and the fair values are estimated using Level 2 inputs. For these facilities, thefair values approximate their carrying values.

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December 31, 2018

Note 14—Fair Value (Continued)

Collateralized loan obligations, Debt Fund, junior subordinated notes and related party financing. Fairvalues are estimated at Level 3 based on broker quotations, representing the discounted expectedfuture cash flows at a yield that reflects current market interest rates and credit spreads.

Senior unsecured notes. Fair values are estimated at Level 1 when current market quotes receivedfrom active markets are available. If quotes from active markets are unavailable, then the fair valuesare estimated at Level 2 utilizing current market quotes received from inactive markets.

Convertible senior unsecured notes, net. Fair values are estimated at Level 2 based on currentmarket quotes received from inactive markets.

We measure certain financial assets and financial liabilities at fair value on a recurring basis. Thefair values of these financial assets and liabilities were determined using the following input levels as ofDecember 31, 2018 (in thousands):

Fair Value MeasurementsUsing Fair Value HierarchyCarrying

Value Fair Value Level 1 Level 2 Level 3

Financial assets:Derivative financial instruments . . . . . . . . . . . . . . . . . . . $6,113 $6,113 $— $5,789 $324

Financial liabilities:Derivative financial instruments . . . . . . . . . . . . . . . . . . . $ 732 $ 732 $— $ 732 $ —

We measure certain financial and non-financial assets at fair value on a nonrecurring basis. Thefair values of these financial and non-financial assets were determined using the following input levelsas of December 31, 2018 (in thousands):

Fair Value MeasurementsUsing Fair Value HierarchyNet Carrying

Value Fair Value Level 1 Level 2 Level 3

Financial assets:Impaired loans, net(1) . . . . . . . . . . . . . . . . . . . . . . $60,766 $60,766 $— $— $60,766

Non-financial assets:Long-lived assets(2) . . . . . . . . . . . . . . . . . . . . . . . . $14,446 $14,446 $— $— $14,446

(1) We had an allowance for loan losses of $71.1 million relating to five loans with an aggregatecarrying value, before loan loss reserves, of $131.8 million at December 31, 2018.

(2) We recorded a $2.0 million impairment loss during 2018 on the office building we own. SeeNote 9—Real Estate Owned and Held-For-Sale for details.

Loan impairment assessments. Loans held for investment are intended to be held to maturity and,accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchasediscounts, and net of the allowance for loan losses, when such loan or investment is deemed to beimpaired. We consider a loan impaired when, based upon current information, it is probable that wewill be unable to collect all amounts due for both principal and interest according to the contractual

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December 31, 2018

Note 14—Fair Value (Continued)

terms of the loan agreement. We evaluate our loans to determine if the value of the underlyingcollateral securing the impaired loan is less than the net carrying value of the loan, which may result inan allowance and corresponding charge to the provision for loan losses. These valuations requiresignificant judgments, which include assumptions regarding capitalization and discount rates, revenuegrowth rates, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan andother factors. The table above and below includes all impaired loans, regardless of the period in whichthe impairment was recognized.

Long-lived assets. We review our real estate owned assets when events or circumstances change,indicating that the carrying amount of an asset may not be partially or fully recoverable. In theevaluation of a real estate owned asset for impairment, many factors are considered, including brokerquotes, estimated current and expected operating cash flows from the asset during the projectedholding period, costs necessary to extend the life or improve the asset, expected capitalization rates,projected stabilized net operating income, selling costs, and the ability to hold and dispose of the assetin the ordinary course of business. We first compare the undiscounted cash flows to be generated bythe asset to the carrying value of such asset. If the undiscounted cash flows are less than the carryingvalue, we recognize an impairment loss by comparing the carrying value of the asset to its fair value.

Quantitative information about Level 3 fair value measurements at December 31, 2018 were asfollows ($ in thousands):

ValuationFair Value Techniques Significant Unobservable Inputs

Financial assets:

Impaired loans:

Land . . . . . . . . . . . . . . . . . . . . . $60,000 Discounted cash flows Discount rate 23.00%Revenue growth rate 3.00%

Office . . . . . . . . . . . . . . . . . . . . . 766 Discounted cash flows Discount rate 11.00%Capitalization rate 9.00%

Revenue growth rate 2.50%

Derivative financial instruments:

Rate lock commitments . . . . . . . . 324 Discounted cash flows W/A discount rate 13.06%

Long-lived assets:

Office building . . . . . . . . . . . . . . 3,171 Broker quotes N/A N/A

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December 31, 2018

Note 14—Fair Value (Continued)

The derivative financial instruments using Level 3 inputs are outstanding for short periods of time(generally less than 60 days). A roll-forward of Level 3 derivative instruments were as follows (inthousands):

Fair Value Measurements UsingSignificant Unobservable Inputs for

the Year Ended December 31,2018 2017 2016

Derivative assetsBalance at beginning of period . . . . . . . . . . . . . . . . $ 276 $ 2,816 $ —Additions from the Acquisition . . . . . . . . . . . . . . . . — — 4,529Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,791) (79,360) (26,157)Realized gains recorded in earnings . . . . . . . . . . . . 98,515 76,544 21,628Unrealized gains recorded in earnings . . . . . . . . . . . 324 276 2,816Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 324 $ 276 $ 2,816

The components of fair value and other relevant information associated with our rate lockcommitments, forward sales commitments and the estimated fair value of cash flows from servicing onloans held-for-sale were as follows (in thousands):

Notional/ Fair Value Interest Rate Total FairPrincipal of Servicing Movement ValueAmount Rights Effect Adjustment

December 31, 2018Rate lock commitments . . . . . . . . . . . . . . . . . . . . . . . $ 18,161 $ 324 $(95) $ 229Forward sale commitments . . . . . . . . . . . . . . . . . . . . . 491,125 — 95 95Loans held-for-sale, net(1) . . . . . . . . . . . . . . . . . . . . . 472,964 10,253 — 10,253Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,577 $ — $10,577

(1) Loans held-for-sale, net are recorded at the lower of cost or market on an aggregate basis andincludes fair value adjustments related to estimated cash flows from MSRs.

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December 31, 2018

Note 14—Fair Value (Continued)

We measure certain assets and liabilities for which fair value is only disclosed. The fair values ofthese assets and liabilities were determined using the following input levels as of December 31, 2018 (inthousands):

Fair Value Measurements Using FairValue Hierarchy

Carrying Value Fair Value Level 1 Level 2 Level 3

Financial assets:Loans and investments, net . . . . . . . . . . $3,200,145 $3,249,499 $ — $ — $3,249,499Loans held-for-sale, net . . . . . . . . . . . . 481,664 489,546 — 479,293 10,253Capitalized mortgage servicing rights,

net . . . . . . . . . . . . . . . . . . . . . . . . . . 273,770 322,463 — — 322,463Securities held-to-maturity, net . . . . . . . 76,363 79,097 — — 79,097

Financial liabilities:Credit and repurchase facilities . . . . . . . $1,135,627 $1,135,774 $ — $472,181 $ 663,593Collateralized loan obligations . . . . . . . 1,593,548 1,588,989 — — 1,588,989Debt fund . . . . . . . . . . . . . . . . . . . . . . 68,183 70,154 — — 70,154Senior unsecured notes . . . . . . . . . . . . . 122,484 123,750 123,750 — —Convertible senior unsecured notes, net . 254,768 267,324 — 267,324 —Junior subordinated notes . . . . . . . . . . . 140,259 95,873 — — 95,873

Note 15—Commitments and Contingencies

Agency Business Commitments. Our Agency Business is subject to supervision by certain regulatoryagencies. Among other things, these agencies require us to meet certain minimum net worth,operational liquidity and restricted liquidity collateral requirements, and compliance with reportingrequirements. Our adjusted net worth and liquidity required by the agencies for all periods presentedexceeded these requirements.

As of December 31, 2018, we were required to maintain at least $13.2 million of liquid assets inone of our subsidiaries to meet our operational liquidity requirements for Fannie Mae and we hadoperational liquidity in excess of this requirement.

We are generally required to share the risk of any losses associated with loans sold under theFannie Mae DUS program and are required to secure this obligation by assigning restricted cashbalances and/or a letter of credit to Fannie Mae. The amount of collateral required by Fannie Mae is aformulaic calculation at the loan level by a Fannie Mae assigned tier which considers the loan balance,risk level of the loan, age of the loan and level of risk-sharing. Fannie Mae requires restricted liquidityfor Tier 2 loans of 75 basis points, 15 basis points for Tier 3 loans and 5 basis points for Tier 4 loans,which is funded over a 48-month period that begins upon delivery of the loan to Fannie Mae. Asignificant portion of our Fannie Mae DUS serviced loans for which we have risk sharing are Tier 2loans. As of December 31, 2018, we met the restricted liquidity requirement with a $44.0 million letterof credit.

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December 31, 2018

Note 15—Commitments and Contingencies (Continued)

As of December 31, 2018, reserve requirements for the Fannie Mae DUS loan portfolio willrequire us to fund $32.2 million in additional restricted liquidity over the next 48 months, assuming nofurther principal paydowns, prepayments, or defaults within our at-risk portfolio. Fannie Maeperiodically reassesses these collateral requirements and may make changes to these requirements inthe future. We generate sufficient cash flow from our operations to meet these capital standards and donot expect any changes to have a material impact on our future operations; however, future changes tocollateral requirements may adversely impact our available cash.

We are subject to various capital requirements in connection with seller/servicer agreements thatwe have entered into with secondary market investors. Failure to maintain minimum capitalrequirements could result in our inability to originate and service loans for the respective investor and,therefore, could have a direct material effect on our consolidated financial statements. As ofDecember 31, 2018, we met all of Fannie Mae’s quarterly capital requirements and our Fannie Maeadjusted net worth was in excess of the required net worth. We are also subject to capital requirementson an annual basis for Ginnie Mae and FHA and we believe we have met all requirements as ofDecember 31, 2018.

As an approved designated seller/servicer under Freddie Mac’s SBL program, we are required topost collateral to ensure that we are able to meet certain purchase and loss obligations required by thisprogram. Under the SBL program, we are required to post collateral equal to $5.0 million, which issatisfied with a $5.0 million letter of credit.

We enter into contractual commitments with borrowers providing rate lock commitments whilesimultaneously entering into forward sale commitments with investors. These commitments areoutstanding for short periods of time (generally less than 60 days) and are described in Note 13—Derivative Financial Instruments and Note 14—Fair Value.

Debt Obligations and Operating Leases. As of December 31, 2018, the maturities of our debtobligations and the minimum annual operating lease payments under leases with a term in excess ofone year were as follows (in thousands):

Minimum AnnualDebt Operating Lease

Year Obligations Payments Total

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 798,974 $ 5,468 $ 804,4422020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075,447 5,210 1,080,6572021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932,465 2,953 935,4182022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,719 2,703 165,4222023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 2,051 127,051Thereafter . . . . . . . . . . . . . . . . . . . . . . . 272,447 4,764 277,211Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,367,052 $23,149 $3,390,201

Unfunded Commitments. In accordance with certain structured loans and investments, we haveoutstanding unfunded commitments of $130.9 million as of December 31, 2018 that we are obligated tofund as borrowers meet certain requirements. Specific requirements include, but are not limited to,

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December 31, 2018

Note 15—Commitments and Contingencies (Continued)

property renovations, building construction and conversions based on criteria met by the borrower inaccordance with the loan agreements.

Litigation. We are currently neither subject to any material litigation nor, to the best of ourknowledge, threatened by any material litigation other than the following:

In June 2011, three related lawsuits were filed by the Extended Stay Litigation Trust (the ‘‘Trust’’),a post-bankruptcy litigation trust alleged to have standing to pursue claims that previously had beenheld by Extended Stay, Inc. and the Homestead Village L.L.C. family of companies (together ‘‘ESI’’)(formerly Chapter 11 debtors, together the ‘‘Debtors’’) that have emerged from bankruptcy. Two of thelawsuits were filed in the U.S. Bankruptcy Court for the Southern District of New York, and the thirdin the Supreme Court of the State of New York, New York County. There were 73 defendants in thethree lawsuits, including 55 corporate and partnership entities and 18 individuals. A subsidiary of oursand certain other entities that are affiliates of ours are included as defendants. The New York StateCourt action has been removed to the Bankruptcy Court. Our affiliates filed a motion to dismiss thethree lawsuits.

The lawsuits all allege, as a factual basis and background certain facts surrounding the June 2007leveraged buyout of ESI from affiliates of Blackstone Capital. Our subsidiary, Arbor ESH II, LLC, hada $115.0 million investment in the Series A1 Preferred Units of a holding company of ExtendedStay, Inc. The New York State Court action and one of the two federal court actions name asdefendants, Arbor ESH II, LLC, ACM and ABT-ESI LLC, an entity in which we have a membershipinterest, among the broad group of defendants. These two actions were commenced by substantiallyidentical complaints. The defendants are alleged in these complaints, among other things, to havebreached fiduciary and contractual duties by causing or allowing the Debtors to pay illegal dividends orother improper distributions of value at a time when the Debtors were insolvent. These two complaintsalso allege that the defendants aided and abetted, induced, or participated in breaches of fiduciaryduty, waste, and unjust enrichment (‘‘Fiduciary Duty Claims’’) and name a director of ours, and aformer general counsel of ACM, each of whom had served on the Board of Directors of ESI for aperiod of time. We are defending these two defendants and paying the costs of such defense. On thebasis of the foregoing allegations, the Trust has asserted claims under a number of common lawtheories, seeking the return of assets transferred by the Debtors prior to the Debtors’ bankruptcy filing.

In the third action, filed in Bankruptcy Court, the same plaintiff, the Trust, has named ACM andABT-ESI LLC, together with a number of other defendants and asserts claims, including constructiveand fraudulent conveyance claims under state and federal statutes, as well as a claim under the FederalDebt Collection Procedure Act.

In June 2013, the Trust filed a motion to amend the lawsuits, to, among other things,(i) consolidate the lawsuits into one lawsuit, (ii) remove 47 defendants, none of whom are related to us,from the lawsuits so that there are 26 remaining defendants, including 16 corporate and partnershipentities and 10 individuals, and (iii) reduce the counts within the lawsuits from over 100 down to 17.The remaining counts in the amended complaint against our affiliates are principally state law claimsfor breach of fiduciary duties, waste, unlawful dividends and unjust enrichment, and claims under theBankruptcy Code for avoidance and recovery actions, among others. The bankruptcy court granted themotion and the amended complaint has been filed. The amended complaint seeks approximately

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December 31, 2018

Note 15—Commitments and Contingencies (Continued)

$139.0 million in the aggregate, plus interest from the date of the alleged unlawful transfers, fromdirector designees, portions of which are also sought from our affiliates as well as from unaffiliateddefendants. We have moved to dismiss the referenced actions and intend to vigorously defend againstthe claims asserted therein. During a status conference held in March 2014, the Court heard oralargument on the motion to dismiss and adjourned the case pending a ruling. Subsequent to thathearing, a new judge was assigned to the case and, in November 2016, the new judge entered an orderdirecting the parties to file supplemental briefs addressing new cases decided since the last round ofbriefing. Oral arguments regarding the motion to dismiss were heard at a hearing held in January 2017.The Court reserved decision at that hearing.

We have not made a loss accrual for this litigation because we believe that it is not probable that aloss has been incurred and an amount cannot be reasonably estimated.

Litigation Settlement. In the third quarter of 2018, we received net proceeds of $10.2 million fromthe settlement of a litigation related to a prior investment, which was recognized as a gain.

Due to Borrowers. Due to borrowers represents borrowers’ funds held by us to fund certainexpenditures or to be released at our discretion upon the occurrence of certain pre-specified events,and to serve as additional collateral for borrowers’ loans. While retained, these balances earn interestin accordance with the specific loan terms they are associated with.

Note 16—Variable Interest Entities

Our involvement with VIEs primarily affects our financial performance and cash flows throughamounts recorded in interest income, interest expense, provision for loan losses and through activityassociated with our derivative instruments.

Consolidated VIEs. We have determined that our operating partnership, ARLP, and our CLO andDebt Fund entities, which we consolidate, are VIEs. ARLP is already consolidated in our financialstatements, therefore, the identification of this entity as a VIE had no impact on our consolidatedfinancial statements.

Our CLO and Debt Fund consolidated entities invest in real estate and real estate-relatedsecurities and are financed by the issuance of debt securities. We, or one of our affiliates, are namedcollateral manager, servicer, and special servicer for all collateral assets held in CLOs, which we believegives us the power to direct the most significant economic activities of those entities. We also haveexposure to losses to the extent of our equity interests and also have rights to waterfall payments inexcess of required payments to bond investors. As a result of consolidation, equity interests have beeneliminated, and the consolidated balance sheets reflect both the assets held and debt issued by theCLOs and Debt Fund to third parties. Our operating results and cash flows include the gross amountsrelated to CLO and Debt Fund assets and liabilities as opposed to our net economic interests in thoseentities.

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December 31, 2018

Note 16—Variable Interest Entities (Continued)

The assets and liabilities related to these consolidated CLOs and Debt Fund are as follows (inthousands):

December 31, December 31,2018 2017

Assets:Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 179,855 $ 138,736Loans and investments, net . . . . . . . . . . . . . . . . . . . . . . . 2,001,617 1,836,744Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,624 14,011Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,198,096 $1,989,491

Liabilities:Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . $1,593,548 $1,418,422Debt fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,183 68,084Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,408 2,046Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,665,139 $1,488,552

Assets held by the CLOs and Debt Fund are restricted and can only be used to settle obligationsof the CLOs and Debt Fund, respectively. The liabilities of the CLOs and Debt Fund are non-recourseto us and can only be satisfied from each respective asset pool. See Note 11—Debt Obligations fordetails. We are not obligated to provide, have not provided, and do not intend to provide financialsupport to any of the consolidated CLOs or Debt Fund.

Unconsolidated VIEs. We determined that we are not the primary beneficiary of 24 VIEs in whichwe have a variable interest as of December 31, 2018 because we do not have the ability to direct theactivities of the VIEs that most significantly impact each entity’s economic performance.

A summary of our variable interests in identified VIEs, of which we are not the primarybeneficiary, as of December 31, 2018 is as follows (in thousands):

CarryingType Amount(1)

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $289,392B Piece bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,363Agency interest only strips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,231Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $368,986

(1) Represents the carrying amount of loans and investments before reserves. AtDecember 31, 2018, $130.1 million of loans to VIEs had corresponding loan loss reservesof $69.4 million. See Note 3—Loans and Investments for details. In addition, themaximum loss exposure as of December 31, 2018 would not exceed the carrying amountof our investment.

These unconsolidated VIEs have exposure to real estate debt of approximately $4.18 billion atDecember 31, 2018.

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December 31, 2018

Note 17—Equity

Preferred Stock. The Series A and B preferred stock became redeemable by us in February 2018and May 2018, respectively. The Series C preferred stock may not be redeemed by us beforeFebruary 25, 2019.

Common Stock. In December 2018, we completed a public offering where we sold 8,700,000shares of our common stock for $11.57 per share, and received net proceeds of $100.5 million. We usedthese net proceeds to make investments relating to our business and for general corporate purposes.We also used a portion of the net proceeds to purchase an aggregate of 870,000 shares of our commonstock from our chief executive officer, ACM and an estate planning family vehicle established by ourchief executive officer, at the same price the underwriters paid to purchase the shares.

In May 2018, we completed a public offering where we sold 5,500,000 shares of our common stockfor $8.72 per share, and received net proceeds of $47.8 million. We used these net proceeds to makeinvestments relating to our business and for general corporate purposes.

During 2018, we issued approximately 7,300,000 shares of our common stock in connection withthe exchanges and subsequent settlements of our 5.375% Convertible Notes and 6.50% ConvertibleNotes.

We have an ‘‘At-The-Market’’ equity offering sales agreement with JMP Securities LLC (‘‘JMP,’’)which entitles us to issue and sell up to 7,500,000 shares of our common stock through JMP. Sales ofthe shares are made by means of ordinary brokers’ transactions or otherwise at market prices prevailingat the time of sale, or at negotiated prices. During 2018, we sold 952,700 shares for net proceeds of$8.1 million. As of December 31, 2018, we had approximately 6,500,000 shares available under thisagreement.

As of December 31, 2018, we had $399.3 million available under our $500.0 million shelfregistration statement that was declared effective by the SEC in June 2018.

Noncontrolling Interest. Noncontrolling interest relates to the OP Units issued to satisfy a portionof the Acquisition purchase price. Upon the closing of the Acquisition in 2016, we issued 21,230,769OP Units. Each of these OP Units are paired with one share of our special voting preferred shareshaving a par value of $0.01 per share and is entitled to one vote each on any matter submitted forstockholder approval. In August 2018, ACM distributed 577,185 OP Units and special voting preferredshares to certain of its members in consideration for their respective membership interests, which wereredeemed by us for cash totaling $6.8 million. At December 31, 2018, there were 20,653,584 OP Unitsoutstanding, which represented 19.7% of the voting power of our outstanding stock. The OP Units areentitled to receive distributions if and when our Board of Directors authorizes and declares commonstock distributions. The OP Units are also redeemable for cash, or at our option, for shares of ourcommon stock on a one-for-one basis.

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December 31, 2018

Note 17—Equity (Continued)

Distributions. Dividends declared (on a per share basis) for the year ended December 31, 2018are as follows:

Common Stock Preferred StockDividend(1)

Declaration Date Dividend Declaration Date Series A Series B Series C

December 13, 2018(2) $0.15 October 31, 2018 $0.515625 $0.484375 $0.53125October 31, 2018 $0.27 August 1, 2018 $0.515625 $0.484375 $0.53125

August 1, 2018 $0.25 May 2, 2018 $0.515625 $0.484375 $0.53125May 2, 2018 $0.25 February 2, 2018 $0.515625 $0.484375 $0.53125

February 21, 2018 $0.21

(1) The dividend declared on October 31, 2018 was for September 1, 2018 through November 30,2018. The dividend declared on August 1, 2018 was for June 1, 2018 through August 31, 2018. Thedividend declared on May 2, 2017 was for March 1, 2018 through May 31, 2018. The dividenddeclared on February 3, 2018 was for December 1, 2017 through February 28, 2018.

(2) On December 13, 2018, our Board of Directors declared a special dividend of $0.15 per commonshare, which was paid in a combination of $2.5 million of cash and 901,432 common shares inJanuary 2019.

Common Stock—On February 13, 2019, the Board of Directors declared a cash dividend of $0.27per share of common stock. The dividend is payable on March 20, 2019 to common stockholders ofrecord as of the close of business on March 1, 2019.

Preferred Stock—On February 1, 2019, the Board of Directors declared a cash dividend of$0.515625 per share of 8.25% Series A preferred stock; a cash dividend of $0.484375 per share of7.75% Series B preferred stock; and a cash dividend of $0.53125 per share of 8.50% Series C preferredstock. These amounts reflect dividends from December 1, 2018 through February 28, 2019 and arepayable on February 28, 2019 to preferred stockholders of record on February 15, 2019.

We have determined that 100% of the common stock and preferred stock dividends paid during2018, 2017 and 2016 represented ordinary income to our stockholders for income tax purposes.Pursuant to Internal Revenue Code Section 59(d), alternative minimum tax (‘‘AMT’’) could beapportioned between a REIT and its stockholders’ to the extent the REIT distributes its regular taxableincome. However, among the numerous provisions included in the Tax Reform enacted in December2017, the AMT was repealed for corporate taxpayers. Therefore, the apportionment of AMT between aREIT and its stockholders is no longer applicable for tax years beginning after December 31, 2017.

Deferred Compensation. We have a stock incentive plan under which the Board of Directors hasthe authority to issue shares of stock to certain employees, officers, directors and, prior to May 31,2017, employees of our Former Manager.

In 2018, 2017 and 2016, we granted 265,444 shares, 299,750 shares and 282,405 shares, respectively,of restricted common stock with a total grant date fair value of $2.3 million, $2.4 million and$1.9 million, respectively, to certain employees of ours and our Former Manager. One third of the

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shares vested as of the grant date and one third will vest on each of the first and second anniversariesof the grant date. In 2018, 2017 and 2016, we also granted 67,002 shares, 74,375 shares and 67,260shares, respectively, of fully vested common stock with a grant date fair value of $0.6 million,$0.6 million and $0.4 million, respectively, to the independent members of our Board of Directors.

Effective January 1, 2017, we entered into an amended and restated annual incentive agreement(the ‘‘2017 annual incentive agreement’’) with our chief executive officer. The chief executive officer’sannual cash bonus and value of his annual long-term equity awards under the 2017 annual incentiveagreement each increased 10% as a result of the Company meeting the equity capitalization growthgoals in his previous incentive agreement. In addition, the chief executive officer is also eligible toreceive a $3.0 million performance-based restricted stock award annually for five years subject tomeeting certain goals related to the integration of the Acquisition. Each $3.0 million award vests in fullthree years after the grant date and is subject to the chief executive officer’s continued employment.All other terms of the 2017 annual incentive agreement are consistent with the chief executive officer’sprevious incentive agreement.

In 2018, 2017 and 2016, we granted our chief executive officer 63,584 shares 74,830 shares 70,225shares, respectively, of restricted common stock with a grant date fair value of $0.6 million, $0.6 millionand $0.5 million, respectively, and up to 381,503, 448,980 and 421,348, respectively, of performance-based restricted stock units with a grant date fair value of $0.8 million, $1.0 million and $0.9 million,respectively. One quarter of the restricted common stock vested on the grant date and one quarter willvest on each of the first, second and third anniversaries of the grant date. The performance-basedrestricted stock units vest at the end of a four-year performance period based on our achievement ofcertain total stockholder return objectives. To date, our chief executive officer was granted in theaggregate up to 1,697,595 performance-based restricted stock units, of which 445,765 units fully vestedbased on achieving the performance objectives for the four-year period ended December 31, 2018.

In 2018 and 2017, we also granted our chief executive officer 294,985 shares and 357,569 shares,respectively, of performance-based restricted stock with a grant date fair value of $3.4 million and$2.7 million, respectively, as a result of achieving goals related to the integration of the Acquisition.The performance-based restricted stock vests in full three years after the grant date.

During 2018, 2017 and 2016, we recorded total stock-based compensation expense of $5.4 million,$3.2 million and $1.6 million, respectively, to employee compensation and benefits and $0.6 million,$1.7 million and $1.9 million, respectively, to selling and administrative expense.

During 2018, 426,079 shares of restricted stock with a grant date fair value of $3.4 million vested.

As of December 31, 2018 and 2017, there were 1,033,616 shares and 774,972 shares, respectively,of unvested restricted common stock with a grant date fair value of $9.5 million and $6.2 million,respectively.

At December 31, 2018, total unrecognized compensation cost related to unvested restrictedcommon stock was $5.5 million, which is expected to be recognized ratably over the remainingweighted-average vesting period of 2.0 years.

Earnings Per Share. Basic EPS is calculated by dividing net income attributable to commonstockholders by the weighted average number of shares of common stock outstanding during each

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period inclusive of participating securities, consisting of unvested restricted stock that receivenonforfeitable dividends, similar to shares of common stock requiring the two-class method ofcomputing earnings per share. Diluted EPS is calculated by dividing net income by the weightedaverage number of shares of common stock outstanding plus the additional dilutive effect of commonstock equivalents during each period using the treasury stock method.

The following tables reconcile the numerator and denominator of our basic and diluted EPScomputations ($ in thousands, except share and per share data):

Year Ended December 31,2018 2017 2016

Basic Diluted Basic Diluted Basic Diluted

Net income attributable to commonstockholders(1) . . . . . . . . . . . . . . $ 108,312 $ 108,312 $ 65,835 $ 65,835 $ 42,796 $ 42,796

Net income attributable tononcontrolling interest(2) . . . . . . . — 32,185 — 24,120 — —

Net income attributable to commonstockholders and noncontrollinginterest . . . . . . . . . . . . . . . . . . . $ 108,312 $ 140,497 $ 65,835 $ 89,955 $ 42,796 $ 42,796

Weighted average shares outstanding . 70,208,165 70,208,165 57,890,574 57,890,574 51,305,095 51,305,095Dilutive effect of OP Units(2) . . . . . — 21,033,103 — 21,230,769 — —Dilutive effect of restricted stock

units(3) . . . . . . . . . . . . . . . . . . . — 1,476,653 — 1,092,072 — 425,458Dilutive effect of convertible notes(4) — 908,861 — 97,837 — —Dilutive effect of stock dividend(5) . . — 15,386 — — — —

Weighted average shares outstanding . 70,208,165 93,642,168 57,890,574 80,311,252 51,305,095 51,730,553

Net income per common share(1) . . . $ 1.54 $ 1.50 $ 1.14 $ 1.12 $ 0.83 $ 0.83

(1) Net of preferred stock dividends.

(2) We consider OP Units to be common stock equivalents as the holders have voting rights, the right todistributions and the right to redeem the OP Units for the cash value of a corresponding number of shares ofcommon stock or a corresponding number of shares of common stock, at our election. For 2016, the OPUnits were considered anti-dilutive and excluded from diluted EPS.

(3) Our chief executive officer was granted restricted stock units in 2018, 2017 and 2016 which vest at the end ofa four-year performance period based upon our achievement of total stockholder return objectives.

(4) The convertible senior unsecured notes impact diluted earnings per share if the average price of our commonstock exceeds the conversion price, as calculated in accordance with the terms of the indenture.

(5) Represents the dilutive effect of the portion of the special dividend that was paid with common shares.

Note 18—Income Taxes

We are organized and conduct our operations to qualify as a REIT and to comply with theprovisions of the Internal Revenue Code. A REIT is generally not subject to federal income tax on

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taxable income which it distributes to its stockholders, provided that it distributes at least 90% of itsREIT—taxable income and meets certain other requirements. Certain REIT income may be subject tostate and local income taxes. We did not have any REIT—federal taxable income, net of dividends paidand net operating loss deductions, for 2018, 2017 and 2016, and therefore, have not provided for REITfederal income tax expense. The REIT incurred state tax (benefit)/expense for 2018, 2017 and 2016 of$(0.1) million, $1.0 million and $0.5 million, respectively. For the 2009 and 2010 tax years, the incomeand the tax on certain debt extinguishment transactions was, at our election, deferred to be recognizedratably over five years from 2014 to 2018.

Certain of our assets and operations that would not otherwise comply with the REIT requirements,such as the Agency Business, are owned or conducted through our TRS Consolidated Group, themajority of the income of which is subject to U.S. federal, state and local income taxes. The TRSConsolidated Group has federal net operating losses from prior years which will be used against theincome from the Agency Business. For 2018, 2017 and 2016, we recorded a provision for income taxesrelated to the assets held in the TRS Consolidated Group and the REIT of $9.7 million, $13.4 millionand $0.8 million, respectively. In 2018, a valuation allowance was recorded at the TRS ConsolidatedGroup of $0.3 million on the deferred tax assets related to capital loss carryforwards. In 2017 and 2016,the valuation allowance of $3.5 million and $5.4 million, respectively, previously recorded at the TRSConsolidated Group was released.

In January 2018, the $50.0 million preferred equity interest entered into with ACM to finance aportion of the Acquisition purchase price was paid off. When we entered into the Acquisition, weestablished a deferred tax liability in connection with the preferred equity interest. Upon payoff inJanuary 2018, the deferred tax liability was written off and we recorded a deferred tax benefit of$12.5 million. See Note 11—Debt Obligations for details.

A summary of our pre-tax GAAP income is as follows (in thousands):

Year Ended December 31,2018 2017 2016

Pre-tax GAAP income:REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,260 $ 66,988 $35,151TRS Consolidated Group . . . . . . . . . . . . . . . . . . 93,522 43,880 8,470Total pre-tax GAAP income . . . . . . . . . . . . . . . . $157,782 $110,868 $43,621

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Our provision for (benefit from) income taxes was comprised as follows (in thousands):

Year Ended December 31,2018 2017 2016

Current tax provisionFederal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,479 $17,201 $ 768State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,285 3,557 1,589

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,764 20,758 2,357Deferred tax (benefit) provision

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,446) $(2,928) $ 1,449State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,867) (929) 2,380Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . 280 (3,542) (5,361)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,033) (7,399) (1,532)Total income tax expense . . . . . . . . . . . . . . . . . . . . . $ 9,731 $13,359 $ 825

A reconciliation of our effective income tax rate as a percentage of pre-tax income to the U.S.federal statutory rate is as follows:

Year Ended December 31,2018 2017 2016

U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . 21.0% 35.0% 35.0%REIT non-taxable income . . . . . . . . . . . . . . . . . . . . . . . . . (8.6) (21.2) (28.2)State and local income taxes, net of federal tax benefit . . . . 0.6 1.6 6.9Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . 0.2 (1.3) (12.3)Preferred equity interest deferred tax write-off . . . . . . . . . . (6.3) — —Tax rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4.8) —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) 2.7 0.5Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2% 12.0% 1.9%

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Note 18—Income Taxes (Continued)

The significant components of our deferred tax assets and liabilities of our TRS ConsolidatedGroup were as follows (in thousands):

December 31,2018 2017

Deferred tax assets:Expenses not currently deductible . . . . . . . . . . . . . . . . . . . . . . . $11,853 $ 9,750Loan loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,614 10,036Net operating and capital loss carryforwards . . . . . . . . . . . . . . . 417 137Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,698) (3,418)Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,186 $16,505

Deferred tax liabilities:Interest in equity affiliates—net . . . . . . . . . . . . . . . . . . . . . . . . . $ 136 $ 2,841Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,674 15,673Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,290 7,493Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 807 1,252Deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,907 $27,259

The Tax Reform was signed into law on December 22, 2017. Among numerous provisions includedin the new tax law was the reduction of the corporate federal income tax rate from 35% to 21%. Theprovision for income taxes for 2018 reflects the newly enacted corporate federal income tax rate of21%. We applied the guidance in Staff Accounting Bulletin No. 118 when accounting for theenactment-date effects of the Tax Reform throughout 2018 and in 2017. At December 31, 2018, wehave completed our accounting for the enactment-date income tax effects of the Tax Reform and nomaterial adjustments have been recorded. At December 31, 2017, the provision for income taxes for2017 included the newly enacted corporate federal income tax rate of 21%, which resulted in adeferred income tax benefit of $5.3 million, primarily from applying the new lower income tax rates toour net long term deferred tax assets and liabilities recorded on our consolidated balance sheets.

At December 31, 2018, our TRS Consolidated Group had $17.2 million of deferred tax assets, netof a $3.7 million valuation allowance. The deferred tax assets consist of expenses not currentlydeductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS ConsolidatedGroup’s deferred tax assets are offset by $15.9 million in deferred tax liabilities consisting of timingdifferences from investments in equity affiliates, intangibles and mortgage servicing rights.

At December 31, 2017, our TRS Consolidated Group had $16.5 million of deferred tax assets, netof a $3.4 million valuation allowance. The deferred tax assets consist of expenses not currentlydeductible, loan loss reserves and net operating loss carryforwards. Our TRS Consolidated Group’sdeferred tax assets were offset by $27.3 million in deferred tax liabilities consisting of timing differencesfrom investments in equity affiliates, intangibles and mortgage servicing rights.

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Note 18—Income Taxes (Continued)

As of December 31, 2018, the REIT (excluding the TRS Consolidated Group) had no federal netoperating loss carryforwards remaining and no capital loss carryforwards. As of December 31, 2017, theREIT (excluding the TRS Consolidated Group) had $3.3 million of federal net operating losscarryforwards and no capital loss carryforwards.

At both December 31, 2018 and 2017, the TRS Consolidated Group had federal and state netoperating loss carryforwards of $0.5 million, which will expire through 2031. As of December 31, 2018,the TRS Consolidated Group had capital loss carryforwards of $1.1 million, which will expire through2023.

We have assessed our tax positions for all open years, which include 2015-2018, and haveconcluded that there were no material uncertainties to be recognized. We have not recognized anyinterest and penalties related to tax uncertainties for the years ended 2015 through 2018.

Note 19—Agreements and Transactions with Related Parties

Management Agreement. Prior to May 31, 2017, we had a management agreement with ACM,pursuant to which ACM provided us with a variety of professional and advisory services vital to ouroperations, including underwriting, accounting and treasury, compliance, marketing, informationtechnology and human resources. Pursuant to the terms of the management agreement, we reimbursedACM for its actual costs incurred in connection with managing our business through a basemanagement fee, and, under certain circumstances, an annual incentive fee. In May 2017, weterminated the existing management agreement. We incurred base management fees of $6.7 million and$12.6 million in 2017 and 2016, respectively.

We have a shared services agreement with ACM where we provide limited support services toACM and they reimburse us for the costs of performing such services. During 2018 and 2017, weincurred $1.3 million and $0.7 million, respectively, of costs for services provided to ACM, which areincluded in due from related party on the consolidated balance sheets.

Other Related Party Transactions. Due from related party was $1.3 million and $0.7 million atDecember 31, 2018 and 2017, respectively, which consisted primarily of amounts due from ACM forcosts incurred in connection with the shared services agreement described above.

In November 2018, we originated a $61.2 million bridge loan (which $15.0 million was funded as ofDecember 31, 2018) on a multifamily property owned in part by a consortium of investors (whichincludes, among other unaffiliated investors, certain of our officers and our chief executive officer)which owns 10% of the borrowing entity. The loan has an interest rate of LIBOR plus 4.50% with aLIBOR floor of 2.00% and matures in October 2021. Interest income recorded from this loan totaled$0.2 million for 2018.

In October 2018, we acquired a $19.5 million bridge loan originated by ACM. The loan was usedto purchase several multifamily properties by a consortium of investors (which includes, among otherunaffiliated investors, certain of our officers and our chief executive officer) which owns 85% of theborrowing entity. The loan has an interest rate of LIBOR plus 4.0% with a LIBOR floor of 2.125%and matures in July 2021. Interest income recorded from this loan totaled $0.3 million for 2018.

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In August 2018, we originated a $17.7 million bridge loan to an entity owned, in part, by animmediate family member of our chief executive officer, who owns a 10.8% interest in the borrowingentity. The loan was used to purchase several undeveloped parcels of land. The loan has a fixedinterest rate of 10% and matures in May 2019. Interest income recorded from this loan totaled$0.8 million for 2018.

In June 2018, we originated a $21.7 million bridge loan on a multifamily property owned in part bya consortium of investors (which includes, among other unaffiliated investors, certain of our officersand our chief executive officer) which owns 75% in the borrowing entity. The loan has an interest rateof LIBOR plus 4.75% with a LIBOR floor of 1.25% and matures in June 2021. Interest incomerecorded from this loan totaled $0.6 million for 2018.

In April 2018, we acquired a $9.4 million bridge loan originated by ACM. The loan was used topurchase several multifamily properties by a consortium of investors (which includes, among otherunaffiliated investors, certain of our officers and our chief executive officer) which owns 75% of theborrowing entity. The loan has an interest rate of LIBOR plus 5.0% with a LIBOR floor of 1.25% andmatures in January 2021. Interest income recorded from this loan totaled $0.3 million for 2018.

In January 2018, we paid $50.0 million in full satisfaction of the related party financing we enteredinto with ACM to finance a portion of the Acquisition purchase price. We incurred interest expenserelated to this financing of $0.3 million, $3.8 million and $1.8 million for 2018, 2017 and 2016,respectively.

In December 2017, we acquired a $32.8 million bridge loan originated by ACM. The loan was usedto purchase several multifamily properties by a consortium of investors (which includes, among otherunaffiliated investors, certain of our officers and our chief executive officer) which owns 90% of theborrowing entity. The loan has an interest rate of LIBOR plus 5.0% with a LIBOR floor of 1.13% andmatures in June 2020. Interest income recorded from this loan totaled $2.4 million and $0.1 million for2018 and 2017, respectively.

In the fourth quarter of 2017, we originated two bridge loans totaling $28.0 million on twomultifamily properties owned in part by a consortium of investors (which includes, among otherunaffiliated investors, certain of our officers and our chief executive officer) which owns 45% of theborrowing entity. The loans have an interest rate of LIBOR plus 5.25% with LIBOR floors rangingfrom 1.24% to 1.54% and mature in the fourth quarter of 2020. Interest income recorded from theseloans totaled $2.1 million and $0.2 million for 2018 and 2017, respectively.

In July 2017, we originated a $36.0 million bridge loan on a multifamily property owned in part bya consortium of investors (which includes, among other unaffiliated investors, certain of our officersand our chief executive officer) which owns a 95% interest in the borrowing entity. The loan had aninterest rate of LIBOR plus 4.5% with a LIBOR floor of 1% and was scheduled to mature in July2020. This loan was repaid in full in August 2018. Interest income recorded from this loan totaled$1.9 million and $0.9 million for 2018 and 2017, respectively.

In May 2017, we originated a $46.9 million Fannie Mae loan on a multifamily property owned inpart by a consortium of investors (which includes, among other unaffiliated investors, certain of ourofficers) which owns a 21.4% interest in the borrowing entity. We carry a maximum loss-sharing

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obligation with Fannie Mae on this loan of up to 5% of the original UPB. Servicing revenue recordedfrom this loan was $0.1 million and less than $0.1 million for 2018 and 2017, respectively.

In March 2017, a consortium of investors (which includes, among other unaffiliated investors, ourchief executive officer and ACM) invested $2.0 million for a 26.1% ownership interest in two portfoliosof multifamily properties which has two bridge loans totaling $14.8 million originated by us in 2016.The loans had an interest rate of LIBOR plus 5.25% with a LIBOR floor of 0.5% and were scheduledto mature in November 2018. One of the loans was repaid in full in the fourth quarter of 2017 and theremaining loan paid off in June 2018. Interest income recorded from these loans totaled $0.3 millionand $1.0 million for 2018 and 2017, respectively.

In January 2017, we modified a $5.0 million preferred equity investment, subsequently increasingour balance to $15.0 million, with a commitment to fund an additional $5.0 million. This investmenthad a fixed interest rate of 11% that was scheduled to mature in January 2020. We also entered into anagreement with a consortium of investors (which include, among other unaffiliated investors, certain ofour officers and our chief executive officer) which admitted them as a member to fund the remaining$5.0 million preferred equity investment, which was generally subordinate to our investment. Theprincipal balance was repaid in full in the fourth quarter of 2017. Interest income recorded from ourinvestment totaled $1.1 million for 2017.

In January 2017, Ginkgo Investment Company LLC (‘‘Ginkgo’’), of which one of our directors is a33% managing member, purchased a multifamily apartment complex which assumed an existing$8.3 million Fannie Mae loan that we service. Ginkgo subsequently sold the majority of its interest inthis property and owned a 3.6% interest at December 31, 2018. We carry a maximum loss-sharingobligation with Fannie Mae on this loan of up to 20% of the original UPB. Upon the sale, we receiveda 1% loan assumption fee which was governed by existing loan agreements that were in place when theloan was originated in 2015, prior to such purchase. Servicing revenue recorded from this loan was$0.1 million for both 2018 and 2017.

In September 2016, we originated $48.0 million of bridge loans on six multifamily properties ownedin part by a consortium of investors (which includes, among other unaffiliated investors, certain of ourofficers and our chief executive officer) which owns interests ranging from 10.5% to 12.0% in theborrowing entities. The loans have an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25%and mature in September 2019. In 2017, a $6.8 million loan on one property paid off in full and in2018 four additional loans totaling $28.3 million paid off in full. Interest income recorded from theseloans totaled $1.9 million, $2.7 million and $0.7 million for 2018, 2017 and 2016, respectively.

In January 2016, we originated a $12.7 million bridge loan and a $5.2 million preferred equityinvestment on two multifamily properties owned in part by a consortium of investors (which includes,among other unaffiliated investors, certain of our officers and our chief executive officer) which owns a50% interest in the borrowing entity. The loan has an interest rate of LIBOR plus 4.5% with a LIBORfloor of 0.25% and was scheduled to mature in January 2019. The preferred equity investment has afixed interest rate of 10% and was scheduled to mature in November 2018. We are currently innegotiations with the borrower to amend the agreements and extend the maturity dates. Interestincome recorded from these loans totaled $1.4 million, $1.3 million and $1.2 million for 2018, 2017 and2016, respectively.

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Note 19—Agreements and Transactions with Related Parties (Continued)

In January 2016, we originated a $19.0 million bridge loan on a multifamily property owned in partby a consortium of investors (which includes, among other unaffiliated investors, certain of our officersand our chief executive officer) which owns a 7.5% interest in the borrowing entity. The loan had aninterest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and was scheduled to mature inJanuary 2019. In January 2018, this loan paid off in full. Interest income recorded from this loantotaled $0.3 million, $1.1 million and $1.0 million for 2018, 2017 and 2016, respectively.

In 2015, we originated a $7.1 million bridge loan on a multifamily property owned in part by aconsortium of investors (which includes, among other unaffiliated investors, certain of our officers andour chief executive officer) which owns a 7.5% interest in the borrowing entity. In August 2017, thisloan paid off in full. The loan had an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25%.Interest income recorded from this loan totaled $0.3 million and $0.4 million for 2017 and 2016,respectively.

In 2015, we originated two bridge loans totaling $16.7 million secured by multifamily propertiesacquired by a third party investor. The properties were owned and were sold in part by a consortium ofinvestors (which includes, among other unaffiliated investors, certain of our officers, our chief executiveofficer and certain other related parties). The loans have an interest rate of LIBOR plus 5% with aLIBOR floor of 0.25% and were scheduled to mature in October 2018. These loans both paid off infull during the third and four quarters of 2018. Interest income recorded from these loans totaled$1.0 million, $1.1 million and $1.0 million for 2018, 2017 and 2016, respectively.

In 2015, we originated a $3.0 million mezzanine loan on a multifamily property that had a$47.0 million first mortgage initially originated by ACM. The loan bore interest at a fixed rate of 12.5%and was scheduled to mature in April 2025. In January 2018, this loan paid off in full. Interest incomerecorded from this loan totaled $0.1 million, $0.3 million and $0.4 million for 2018, 2017 and 2016,respectively.

In 2015, we originated a $6.3 million bridge loan on a multifamily property owned by a consortiumof investors (which includes, among other unaffiliated investors, certain of our officers, including ourchief executive officer and ACM) who together own an interest of 90% in the borrowing entity. Theloan had an interest rate of LIBOR plus 4.5% with a LIBOR floor of 0.25% and was scheduled tomature in April 2018. The loan was repaid in full in 2016. Interest income recorded from this loantotaled $0.4 million for 2016.

In 2015, we modified an $18.0 million preferred equity investment, increasing our balance to$23.0 million with a fixed interest rate of 10% and was scheduled to mature in February 2018. Toaccomplish the modification, we formed a joint venture with a consortium of investors (which includes,among other unaffiliated investors, certain of our officers, including our chief executive officer, andother related parties) to invest an additional $2.0 million preferred equity investment that is generallysubordinate to ours. During 2016, the preferred equity investment was repaid in full and we receivedproceeds of $1.0 million. Interest income recorded from this loan was $1.0 million for 2016.

In 2015, we invested $9.6 million for 50% of ACM’s indirect interest in a joint venture with a thirdparty that was formed to invest in a residential mortgage banking business. As a result of thistransaction, we had an initial indirect interest of 22.5% in this entity. Since the initial investment, weinvested an additional $16.1 million through this joint venture in non-qualified residential mortgages

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December 31, 2018

Note 19—Agreements and Transactions with Related Parties (Continued)

purchased from the mortgage banking business’s origination platform and we received cash distributionstotaling $16.9 million (that were classified as returns of capital) as a result of the joint venture sellingmost of its mortgage assets (which $0.7 million was received in 2018). We recorded income from theseinvestments of $0.9 million, a loss of $7.2 million and income of $10.0 million for 2018, 2017 and 2016,respectively. In connection with a litigation settlement related to this investment, we provided aguaranty of up to 50% of any amounts payable in connection with the settlement. ACM has alsoprovided us with a guaranty to pay up to 50% of any amounts we may pay under this guaranty. As ofDecember 31, 2018, our maximum exposure under this guaranty totals $1.9 million. We have notaccrued this amount as we do not believe that we will be required to make any nonrefundablepayments under this guaranty.

Interest income recorded from loans originated in 2014 or prior years with our affiliates totaled$0.2 million, $4.1 million and $4.6 million for 2018, 2017 and 2016, respectively.

We, along with an executive officer of ours and a consortium of independent outside investors,hold equity investments in a portfolio of multifamily properties referred to as the ‘‘Lexford’’ portfolio,which is managed by an entity owned primarily by a consortium of affiliated investors, including ourchief executive officer and an executive officer of ours. Based on the terms of the managementcontract, the management company is entitled to 4.75% of gross revenues of the underlying properties,along with the potential to share in the proceeds of a sale or restructuring of the debt. In June 2018,the owners of Lexford restructured part of its debt and we originated twelve bridge loans totaling$280.5 million, which were used to repay in full certain existing mortgage debt and to renovate 72multifamily properties included in the portfolio. The loans which we originated in June 2018 haveinterest rates of 400 basis points over LIBOR and mature in June 2021 (with 2 one-year extensionoptions). Interest income recorded from these loans totaled $10.1 million during 2018. Further, as partof this June 2018 restructuring, $50.0 million in unsecured financing was provided by an unsecuredlender to certain parent entities of the property owners. ACM owns slightly less than half of theunsecured lender entity and, therefore, provided slightly less than half of the unsecured lenderfinancing. In addition, in connection with our equity investment, we received distributions totaling$2.5 million, $2.5 million and $2.8 million during 2018, 2017 and 2016, respectively, which wererecorded as income from equity affiliates. Separate from the loans we originated in June 2018, weprovide limited (‘‘bad boy’’) guarantees for certain other debt controlled by Lexford. The bad boyguarantees may become a liability for us upon standard ‘‘bad’’ acts such as fraud or a materialmisrepresentation by Lexford or us. At December 31, 2018, this debt had an aggregate outstandingbalance of $320.7 million and is scheduled to mature between 2019 and 2025.

Several of our executives, including our chief financial officer, general counsel and our chairman,chief executive officer and president, hold similar positions for ACM. Our chief executive officer andhis affiliated entities (‘‘the Kaufman Entities’’) together beneficially own approximately 80% of theoutstanding membership interests of ACM and certain of our employees and directors also hold anownership interest in ACM. Furthermore, one of our directors serves as the trustee and co-trustee oftwo of the Kaufman Entities that hold membership interests in ACM. Upon the closing of theAcquisition in 2016, we issued 21,230,769 OP Units, each paired with one share of our special votingpreferred shares. In December 2017 and August 2018, ACM distributed 5,780,348 and 577,185 OPUnits, respectively, to certain of its members, which include the Kaufman Entities and certain of our

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December 31, 2018

Note 19—Agreements and Transactions with Related Parties (Continued)

officers and employees. At December 31, 2018, ACM holds 4,945,837 shares of our common stock and14,873,236 OP Units, which represents 18.9% of the voting power of our outstanding stock. Our Boardof Directors approved a resolution under our charter allowing our chief executive officer and ACM,(which our chief executive officer has a controlling equity interest in), to own more than the 5%ownership interest limit of our common stock as stated in our amended charter.

Note 20—Employee Benefits

We assumed a 401(k) defined contribution plan (the ‘‘401(k) Plan’’) and a non-qualified deferredcompensation plan (the ‘‘Deferred Comp Plan’’) in connection with the Acquisition.

The 401(k) Plan is available to all employees who have completed six months of continuousservice. The 401(k) Plan matches 25% of the first 6% of each employee’s contribution. We have theoption to increase the employer match based on our operating results. In 2018, 2017 and 2016, werecorded $0.6 million, $0.6 million and $0.3 million, respectively, of expenses associated with the401(k) Plan, which is included in employee compensation and benefits in our consolidated statementsof income.

The Deferred Comp Plan is offered to certain full-time employees and is subject to the rules ofsection 409(a) of the Internal Revenue Code. Under the Deferred Comp Plan, which can be modifiedor discontinued at any time, participating employees may defer a portion of their compensation and weare contractually obligated to match the contribution, as specified in the Deferred Comp Plan, andfund such amounts upon vesting and an election by participants to redeem their interests. All employeedeferrals vest immediately and matching contributions vest over a nine-year period beginning after yearfive. For 2018, 2017 and 2016, there were $3.4 million, $2.4 million and $0.7 million, respectively, ofemployee deferrals. As of December 31, 2018 and 2017, we had recorded liabilities totaling $8.8 millionand $5.9 million, respectively, and assets of $5.9 million and $4.5 million, respectively, related to theDeferred Comp Plan, which is included in other liabilities and other assets, respectively, in ourconsolidated balance sheets.

Note 21—Segment Information

The summarized statements of income and balance sheet data, as well as certain other data, bysegment are included in the following tables ($ in thousands). Specifically identifiable costs arerecorded directly to each business segment. For items not specifically identifiable, costs have beenallocated between the business segments using the most meaningful allocation methodologies, whichwas predominately direct labor costs (i.e., time spent working on each business segment). Such costsinclude, but are not limited to, compensation and employee related costs, selling and administrativeexpenses, management fees (through May 31, 2017—effective date of the termination of the existingmanagement agreement with ACM) and stock-based compensation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

Year Ended December 31, 2018Structured Agency Other /Business Business Eliminations(1) Consolidated

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $226,750 $ 25,018 $ — $251,768Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,719 15,770 329 153,818

Net interest income . . . . . . . . . . . . . . . . . . . . . . . 89,031 9,248 (329) 97,950Other revenue:Gain on sales, including fee-based services, net . . . . — 70,002 — 70,002Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . — 98,839 — 98,839Servicing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . — 94,158 — 94,158Amortization of MSRs . . . . . . . . . . . . . . . . . . . . . . — (48,124) — (48,124)Property operating income . . . . . . . . . . . . . . . . . . . 10,095 — — 10,095Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . 1,490 6,671 — 8,161

Total other revenue . . . . . . . . . . . . . . . . . . . . . . . 11,585 221,546 — 233,131Other expenses:Employee compensation and benefits . . . . . . . . . . . 27,456 83,014 — 110,470Selling and administrative . . . . . . . . . . . . . . . . . . . . 15,642 21,432 — 37,074Property operating expenses . . . . . . . . . . . . . . . . . . 10,431 — — 10,431Depreciation and amortization . . . . . . . . . . . . . . . . 1,851 5,602 — 7,453Impairment loss on real estae owned . . . . . . . . . . . . 2,000 — — 2,000Provision for loss sharing (net of recoveries) . . . . . . — 3,843 — 3,843Provision for loan losses (net of recoveries) . . . . . . . 8,353 — — 8,353Litigation settlement gain . . . . . . . . . . . . . . . . . . . . (10,170) — — (10,170)

Total other expenses . . . . . . . . . . . . . . . . . . . . . . 55,563 113,891 — 169,454Income before extinguishment of debt, income from

equity affiliates and income taxes . . . . . . . . . . . . . 45,053 116,903 (329) 161,627Loss on extinguishment of debt . . . . . . . . . . . . . . . . (5,041) — — (5,041)Income from equity affiliates . . . . . . . . . . . . . . . . . 1,196 — — 1,196Benefit from (provision for) income taxes . . . . . . . . 774 (10,505) — (9,731)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,982 106,398 (329) 148,051Preferred stock dividends . . . . . . . . . . . . . . . . . . . . 7,554 — — 7,554Net income attributable to noncontrolling interest . . — — 32,185 32,185Net income attributable to common stockholders . . . $ 34,428 $106,398 $(32,514) $108,312

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

Year Ended December 31, 2017Structured Agency Other /Business Business Eliminations(1) Consolidated

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $136,526 $ 19,651 $ — $156,177Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,136 12,089 3,847 90,072

Net interest income . . . . . . . . . . . . . . . . . . . . . . . 62,390 7,562 (3,847) 66,105Other revenue:Gain on sales, including fee-based services, net . . . . — 72,799 — 72,799Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . — 76,820 — 76,820Servicing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . — 76,412 — 76,412Amortization of MSRs . . . . . . . . . . . . . . . . . . . . . . — (47,202) — (47,202)Property operating income . . . . . . . . . . . . . . . . . . . 10,973 — — 10,973Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . 2,083 (1,398) — 685

Total other revenue . . . . . . . . . . . . . . . . . . . . . . . 13,056 177,431 — 190,487Other expenses:Employee compensation and benefits . . . . . . . . . . . 19,555 72,571 — 92,126Selling and administrative . . . . . . . . . . . . . . . . . . . . 11,765 18,973 — 30,738Property operating expenses . . . . . . . . . . . . . . . . . . 10,482 — — 10,482Depreciation and amortization . . . . . . . . . . . . . . . . 1,784 5,601 — 7,385Impairment loss on real estate owned . . . . . . . . . . . 3,200 — — 3,200Provision for loss sharing (net of recoveries) . . . . . . — (259) — (259)Provision for loan losses (net of recoveries) . . . . . . . (456) — — (456)Management fee—related party . . . . . . . . . . . . . . . 3,259 3,414 — 6,673

Total other expenses . . . . . . . . . . . . . . . . . . . . . . 49,589 100,300 — 149,889Income before extinguishment of debt, loss from

equity affiliates and income taxes . . . . . . . . . . . . . 25,857 84,693 (3,847) 106,703Gain on extinguishment of debt . . . . . . . . . . . . . . . 7,116 — — 7,116Loss from equity affiliates . . . . . . . . . . . . . . . . . . . . (2,951) — — (2,951)Provision for income taxes . . . . . . . . . . . . . . . . . . . (957) (12,402) — (13,359)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,065 72,291 (3,847) 97,509Preferred stock dividends . . . . . . . . . . . . . . . . . . . . 7,554 — — 7,554Net income attributable to noncontrolling interest . . — — 24,120 24,120Net income attributable to common stockholders . . . $ 21,511 $ 72,291 $(27,967) $ 65,835

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

The Agency Business information for 2016 in the following table includes only the operatingresults of the Acquisition from July 14, 2016 (Acquisition closing date) to December 31, 2016.

Year Ended December 31, 2016Structured Agency Other /Business Business Eliminations(1) Consolidated

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,622 $ 6,551 $ — $116,173Other interest income, net . . . . . . . . . . . . . . . . . . . 2,539 — — 2,539Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,943 3,887 1,793 63,623

Net interest income . . . . . . . . . . . . . . . . . . . . . . 54,218 2,664 (1,793) 55,089Other revenue:Gain on sales, including fee-based services, net . . . . — 24,594 — 24,594Mortgage servicing rights . . . . . . . . . . . . . . . . . . . . — 44,941 — 44,941Servicing revenue . . . . . . . . . . . . . . . . . . . . . . . . . . — 30,759 — 30,759Amortization of MSRs . . . . . . . . . . . . . . . . . . . . . . — (21,705) — (21,705)Property operating income . . . . . . . . . . . . . . . . . . . 14,881 — — 14,881Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . 542 499 — 1,041

Total other revenue . . . . . . . . . . . . . . . . . . . . . . 15,423 79,088 — 94,511Other expenses:Employee compensation and benefits . . . . . . . . . . . 14,884 23,763 — 38,647Selling and administrative . . . . . . . . . . . . . . . . . . . . 9,714 7,873 — 17,587Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10,262 10,262Property operating expenses . . . . . . . . . . . . . . . . . . 13,501 — — 13,501Depreciation and amortization . . . . . . . . . . . . . . . . 2,454 2,568 — 5,022Impairment loss on real estae owned . . . . . . . . . . . 11,200 — — 11,200Provision for loss sharing (net of recoveries) . . . . . . — 2,235 — 2,235Provision for loan losses (net of recoveries) . . . . . . . (134) — — (134)Management fee—related party . . . . . . . . . . . . . . . 9,044 3,556 — 12,600

Total other expenses . . . . . . . . . . . . . . . . . . . . . . 60,663 39,995 10,262 110,920Income before sale of real estate, income from

equity affiliates and income taxes . . . . . . . . . . . . 8,978 41,757 (12,055) 38,680Gain on sale of real estate . . . . . . . . . . . . . . . . . . . 11,631 — — 11,631Income from equity affiliates . . . . . . . . . . . . . . . . . 12,995 — — 12,995Provision for income taxes . . . . . . . . . . . . . . . . . . . — (825) — (825)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,604 40,932 (12,055) 62,481Preferred stock dividends . . . . . . . . . . . . . . . . . . . . 7,554 — — 7,554Net income attributable to noncontrolling interest . . — — 12,131 12,131Net income attributable to common stockholders . . . $ 26,050 $ 40,932 $(24,186) $ 42,796

(1) Includes certain corporate expenses not allocated to the two reportable segments, such as financingcosts associated with the Acquisition, as well as income allocated to the noncontrolling interestholders.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

December 31, 2018Structured Agency Other /Business Business Eliminations Consolidated

Assets:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 89,457 $ 70,606 $— $ 160,063Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,606 — — 180,606Loans and investments, net . . . . . . . . . . . . . . . . . . 3,200,145 — — 3,200,145Loans held-for-sale, net . . . . . . . . . . . . . . . . . . . . — 481,664 — 481,664Capitalized mortgage servicing rights, net . . . . . . . . — 273,770 — 273,770Securities held-to-maturity, net . . . . . . . . . . . . . . . — 76,363 — 76,363Investments in equity affiliates . . . . . . . . . . . . . . . . 21,580 — — 21,580Goodwill and other intangible assets . . . . . . . . . . . 12,500 103,665 — 116,165Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,494 20,325 — 101,819Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,585,782 $1,026,393 $— $4,612,175

Liabilities:Debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . $2,842,688 $ 472,181 $— $3,314,869Allowance for loss-sharing obligations . . . . . . . . . . — 34,298 — 34,298Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 159,413 38,029 — 197,442Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,002,101 $ 544,508 $— $3,546,609

December 31, 2017Structured Agency Other /Business Business Eliminations Consolidated

Assets:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 37,056 $ 67,318 $ — $ 104,374Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,398 — — 139,398Loans and investments, net . . . . . . . . . . . . . . . . . . . 2,579,127 — — 2,579,127Loans held-for-sale, net . . . . . . . . . . . . . . . . . . . . . . — 297,443 — 297,443Capitalized mortgage servicing rights, net . . . . . . . . . — 252,608 — 252,608Securities held-to-maturity, net . . . . . . . . . . . . . . . . . — 27,837 — 27,837Investments in equity affiliates . . . . . . . . . . . . . . . . . 23,653 — — 23,653Goodwill and other intangible assets . . . . . . . . . . . . 12,500 109,266 — 121,766Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,227 13,512 — 79,739Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,857,961 $767,984 $ — $3,625,945

Liabilities:Debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,189,700 $291,536 $50,000 $2,531,236Allowance for loss-sharing obligations . . . . . . . . . . . — 30,511 — 30,511Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,814 42,819 1,009 199,642Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,345,514 $364,866 $51,009 $2,761,389

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

Year Ended December 31,2018 2017 2016

Origination Data:Structured BusinessNew loan originations . . . . . . . . . . . . . . . . . . $1,656,020 $1,842,974 $ 847,683Loan payoffs / paydowns . . . . . . . . . . . . . . . . 955,575 924,120 553,409

Agency BusinessOrigination Volumes by Investor:Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . $3,332,100 $2,929,481 $1,668,581Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,958 1,322,498 456,422FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,523 189,087 24,630CMBS/Conduit . . . . . . . . . . . . . . . . . . . . . . . 50,908 21,370 —Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,124,489 $4,462,436 $2,149,633

Total loan commitment volume . . . . . . . . . . . $5,104,072 $4,344,328 $2,129,720

Loan Sales Data:Agency BusinessFannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . $3,217,006 $3,223,953 $1,130,392Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . 1,540,483 1,399,029 332,319FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,747 170,554 29,673CMBS/Conduit . . . . . . . . . . . . . . . . . . . . . . . 50,908 21,370 —Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,924,144 $4,814,906 $1,492,384(1)

Sales margin (fee-based services as a % ofloan sales) . . . . . . . . . . . . . . . . . . . . . . . . . 1.42% 1.51% 1.65%

MSR rate (MSR income as a % of loancommitments) . . . . . . . . . . . . . . . . . . . . . . 1.94% 1.77% 2.11%

(1) Loan sales were $1.91 billion for 2016, including loans that were acquired as part of theAcquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 21—Segment Information (Continued)

December 31, 2018Wtd. Avg. Wtd. Avg. LifeServicing of Servicing

UPB of Servicing Fee Rate PortfolioKey Servicing Metrics for Agency Business: Portfolio (basis points) (in years)

Fannie Mae . . . . . . . . . . . . . . . . . . . . . $13,562,667 51.3 7.4Freddie Mac . . . . . . . . . . . . . . . . . . . . . 4,394,287 30.8 10.8FHA . . . . . . . . . . . . . . . . . . . . . . . . . . 644,687 15.5 19.6Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,601,641 45.2 8.6

December 31, 2017

Fannie Mae . . . . . . . . . . . . . . . . . . . . . $12,502,699 53.6 6.9Freddie Mac . . . . . . . . . . . . . . . . . . . . . 3,166,134 29.5 10.5FHA . . . . . . . . . . . . . . . . . . . . . . . . . . 537,482 16.5 19.6Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,206,315 47.7 8.1

Note 22—Selected Quarterly Financial Data—Unaudited

Summarized quarterly financial data for 2018 and 2017 is as follows ($ in thousands, except pershare data):

Three Months EndedDecember 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018

Net interest income . . . . . . . . . . . . . . $30,361 $27,952 $21,411 $18,225Total other revenue . . . . . . . . . . . . . . 77,464 55,580 46,923 53,162Total other expenses . . . . . . . . . . . . . 50,255 34,739 40,610 43,849Income before extinguishment of debt,

income from equity affiliates andincome taxes . . . . . . . . . . . . . . . . . 57,570 48,793 27,724 27,538

Loss on extinguishment of debt . . . . . (82) (4,960) — —Income (loss) from equity affiliates . . . 91 (1,028) 1,387 746(Provision for) benefit from income

taxes . . . . . . . . . . . . . . . . . . . . . . . (8,635) (5,381) (4,499) 8,784Net income . . . . . . . . . . . . . . . . . . . . 48,944 37,424 24,612 37,068Preferred stock dividends . . . . . . . . . . 1,888 1,888 1,888 1,888Net income attributable to

noncontrolling interest . . . . . . . . . . 9,838 7,799 5,557 8,991Net income attributable to common

stockholders . . . . . . . . . . . . . . . . . . $37,218 $27,737 $17,167 $26,189

Basic earnings per common share(1) . . $ 0.48 $ 0.37 $ 0.26 $ 0.42

Diluted earnings per common share(1) $ 0.47 $ 0.36 $ 0.25 $ 0.42

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2018

Note 22—Selected Quarterly Financial Data—Unaudited (Continued)

Three Months EndedDecember 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017

Net interest income . . . . . . . . . . . . . . $19,671 $18,290 $14,057 $14,088Total other revenue . . . . . . . . . . . . . . 51,431 47,989 44,735 46,332Total other expenses . . . . . . . . . . . . . 37,999 36,596 37,043 38,254Income before extinguishment of debt,

income from equity affiliates andincome taxes . . . . . . . . . . . . . . . . . 33,103 29,683 21,749 22,166

Gain on extinguishment of debt . . . . . — — — 7,116(Loss) income from equity affiliates . . (4,706) 995 (3) 763Benefit from (provision for) income

taxes . . . . . . . . . . . . . . . . . . . . . . . 2,885 (6,708) (3,435) (6,101)Net income . . . . . . . . . . . . . . . . . . . . 31,282 23,970 18,311 23,944Preferred stock dividends . . . . . . . . . . 1,888 1,888 1,888 1,888Net income attributable to

noncontrolling interest . . . . . . . . . . 7,524 5,661 4,494 6,442Net income attributable to common

stockholders . . . . . . . . . . . . . . . . . . $21,870 $16,421 $11,929 $15,614

Basic earnings per common share(1) . . $ 0.35 $ 0.27 $ 0.21 $ 0.30

Diluted earnings per common share(1) $ 0.35 $ 0.26 $ 0.21 $ 0.30

(1) The sum of the quarterly amounts may not equal amounts reported for year-to-date periods, dueto the effects of rounding for each period.

145

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE IV—LOANS AND OTHER LENDING INVESTMENTS

DECEMBER 31, 2018

($ in thousands)

CarryingAmount

Periodic Interest Pay Subject toPayment Maturity Rate Face Carrying Delinquent

Type Location Terms(1) Date(2) Index(3) Prior Liens Amount(4) Amount(5) Interest

Bridge Loans:

Bridge loans in excess of 3% of carrying amount of total loans:Multifamily Various IO 2020 - 2021 LIBOR + 3.40% - 11.95% $ — $ 429,500 $ 429,621 $ —

Floor 0.25% - 1.36%

Bridge loans less than 3% of carrying amount of total loans(6):Multifamily Various IO / PI 2019 - 2023 LIBOR + 3.00% - 12.98% — 1,764,647 1,757,259 —

Floor 0.16% - 2.50%Fixed 3.00% - 12.00%

Self Storage Various IO 2019 - 2022 LIBOR + 3.90% - 10.60% 11,800 301,830 300,534 —Floor 0.78% - 1.57%

Land Various IO 2019 LIBOR + 4.00% — 136,295 68,268 —Floor 0.15%

Fixed 0.00% - 11.64%Office Various IO / PI 2019 - 2020 LIBOR + 3.10% - 8.00% — 122,167 120,096 —

Floor 0.24% - 2.13%Healthcare Various IO 2019 - 2021 LIBOR + 4.75% - 11.60% — 122,775 122,064 —

Floor 1.12% - 2.50%Hotel NY IO 2019 - 2020 LIBOR + 5.30% - 8.28% — 80,100 79,664 —

Floor 0.45% - 2.38%Retail Various IO 2019 - 2021 LIBOR + 4.95% - 6.00% — 35,500 35,264 —

Floor 2.13% - 2.38%

Total Bridge Loans less than 3% of carrying amount of total loans 11,800 2,563,314 2,483,149 —

Total Bridge Loans 11,800 2,992,814 2,912,770 —

Preferred Equity Investments:

Preferred equity investments less than 3% of carrying amount of total loans(6):Multifamily Various IO / PI 2019 - 2029 Fixed 6.00% - 14.00% 755,446 179,081 178,024 —Commercial NY IO 2019 Fixed 6.00% 29,792 1,700 — —

Office SC PI 2024 Fixed 15.00% 9,978 880 870 —

Total Preferred Equity Investments 795,216 181,661 178,894 —

146

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE IV—LOANS AND OTHER LENDING INVESTMENTS (Continued)

DECEMBER 31, 2018

($ in thousands)

CarryingAmount

Periodic Interest Pay Subject toPayment Maturity Rate Face Carrying Delinquent

Type Location Terms(1) Date(2) Index(3) Prior Liens Amount(4) Amount(5) Interest

Mezzanine Loans:

Mezzanine loans less than 3% of carrying amount of total loans(6):Multifamily Various IO 2019 - 2023 Fixed 2.00% - 11.50% 33,193 54,692 54,529 —

Hotel NY IO 2020 LIBOR + 13.00% 60,625 19,975 19,835 —Floor 1.23%

Land Various IO 2019 Fixed 0.00% - 12.00% — 15,333 15,318 —Retail Various IO / PI 2021 - 2024 Fixed 12.00% 31,191 9,867 9,822 —Office Various IO 2020 - 2028 LIBOR + 11.81% 60,000 9,000 8,977 —

Floor 2.13%Fixed 9.00%

Total Mezzanine Loans 185,009 108,867 108,481 —

Total Loans $992,025 $3,283,342 $3,200,145 $ —

(1) IO = Interest Only, PI = Principal and Interest.

(2) Maturity date does not include possible extensions.

(3) References to LIBOR are to one-month LIBOR unless specifically stated otherwise.

(4) During 2018, $425.2 million of loans were extended.

(5) The federal income tax basis is approximately $3.28 billion.

(6) Individual loans each have a carrying value less than 3% of total loans.

147

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

SCHEDULE IV—LOANS AND OTHER LENDING INVESTMENTS (Continued)

DECEMBER 31, 2018

($ in thousands)

The following table reconciles our loans and investments carrying amounts for the periodsindicated (in thousands):

Year Ended December 31,2018 2017 2016

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $2,579,127 $1,695,732 $1,450,334

Additions during period:New loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,658,732 1,842,974 847,683Loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,173 20,473 2,959Funding of unfunded loan commitments(1) . . . . . . . . . . . . . . 21,027 51,689 7,851Accretion of unearned revenue . . . . . . . . . . . . . . . . . . . . . . . 9,278 6,519 4,297Recoveries of reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,527 2,456 193

Deductions during period:Loan payoffs and paydowns . . . . . . . . . . . . . . . . . . . . . . . . . (957,163) (929,796) (556,893)Unfunded loan commitments(1) . . . . . . . . . . . . . . . . . . . . . . (88,617) (77,233) (50,691)Use of loan charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,173) (20,473) (2,959)Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,986) (2,000) (59)Unearned revenue and costs . . . . . . . . . . . . . . . . . . . . . . . . . (10,780) (11,214) (6,983)

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200,145 $2,579,127 $1,695,732

(1) In accordance with certain loans and investments, we have outstanding unfunded commitmentsthat we are obligated to fund as the borrowers meet certain requirements. Specific requirementsinclude, but are not limited to, property renovations, building construction and conversions basedon criteria met by the borrower in accordance with the loan agreements.

148

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management, with the participation of our chief executive officer and chief financial officer, hasevaluated the effectiveness of our disclosure controls and procedures at December 31, 2018. Based onthis evaluation, our chief executive officer and chief financial officer have concluded that our disclosurecontrols and procedures were effective as of December 31, 2018.

No change in internal control over financial reporting occurred during the quarter endedDecember 31, 2018 that has materially affected, or is reasonably likely to materially affect, internalcontrols over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act as a process designed by, or under the supervision of, the principal executiveand principal financial officer and effected by the Board of Directors, management and other personnelto provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with GAAP and includes those policies andprocedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance withGAAP, and that our receipts and expenditures are being made only in accordance with theauthorization of our management and directors; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent ordetect misstatement. Projections of any evaluation of effectiveness to future periods are subject to therisks that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

We assessed the effectiveness of our internal control over financial reporting at December 31,2018. In making this assessment, we used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in Internal Control-Integrated Framework (2013Framework). Based on this assessment, we concluded that, as of December 31, 2018, our internalcontrol over financial reporting was effective.

Our independent registered public accounting firm has issued a report on management’sassessment of our internal control over financial reporting, which is included herein.

149

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ofArbor Realty Trust, Inc. and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited Arbor Realty Trust, Inc. and Subsidiaries’ internal control over financial reportingas of December 31, 2018, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(the COSO criteria). In our opinion, Arbor Realty Trust, Inc. and Subsidiaries (the Company)maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company AccountingOversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as ofDecember 31, 2018 and 2017, the related consolidated statements of income, comprehensive income,changes in equity and cash flows for each of the three years in the period ended December 31, 2018,and the related notes and financial statement schedule listed in the Index at Item 15(a) and our reportdated February 15, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control over financial reporting includedin the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting basedon our audit. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internalcontrol over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis forour opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made onlyin accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on the financial statements.

150

Because of its inherent limitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness to future periods are subjectto the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New York, New YorkFebruary 15, 2019

151

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Based solely on our review of the copies of such forms received by it, or written representationsfrom certain reporting persons that no filings were required for those persons, we believe that duringand with respect to the fiscal year ended December 31, 2018 all filings required by Section 16(a) of theExchange Act were made timely, except for: (1) a Form 4 filed by Ivan Kaufman for the sale of1,378,175 partnership common units and preferred shares on August 22, 2018 to a trust for the benefitof his immediate family administered by independent trustees (which was reported on August 31, 2018);and (2) a Form 4 filed by Melvin Lazar for the purchase of 230 shares of our common stock onMarch 19, 2018 (which was reported on April 2, 2018).

The information regarding our directors and executive officers set forth under the captions ‘‘Boardof Directors’’ and ‘‘Executive Officers’’ of the 2019 Proxy Statement is incorporated herein byreference.

The information regarding our code of ethics for our chief executive and other senior financialofficers under the caption ‘‘Senior Officer Code of Ethics and Code of Business Conduct and Ethics’’of the 2019 Proxy Statement is incorporated herein by reference.

The information regarding our corporate governance under the caption ‘‘Board Committees’’ inthe 2019 Proxy Statement is incorporated herein by reference.

Item 11. Executive Compensation

The information contained in the section captioned ‘‘Executive Compensation’’ of the 2019 ProxyStatement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters

The information contained in the section captioned ‘‘Security Ownership of Certain BeneficialOwners and Management’’ of the 2019 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the section captioned ‘‘Certain Relationships and RelatedTransactions’’ and ‘‘Director Independence’’ of the 2019 Proxy Statement is incorporated herein byreference.

Item 14. Principal Accounting Fees and Services

The information regarding our independent accountant’s fees and services in the sectionscaptioned ‘‘Independent Accountants’ Fees’’ and ‘‘Audit Committee Pre-Approval Policy’’ of the 2019Proxy Statement is incorporated herein by reference.

152

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) and (c) Financial Statements and Schedules.

See the index to the consolidated financial statements and schedules included in Item 8 of thisreport.

(b) Exhibits.

ExhibitNumber Description

3.1 Articles of Incorporation of Arbor Realty Trust, Inc.*

3.2 Articles of Amendment to Articles of Incorporation of Arbor Realty Trust, Inc.!

3.3 Articles Supplementary of Arbor Realty Trust, Inc.*

3.4 Articles Supplementary of 8.250% Series A Cumulative Redeemable Preferred Stock.❖

3.5 Articles Supplementary of 7.75% Series B Cumulative Redeemable Preferred Stock.$

3.6 Articles Supplementary of 8.50% Series C Cumulative Redeemable Preferred Stock.$$

3.7 Articles Supplementary designating Special Voting Preferred Stock.**

3.8 Amended and Restated Bylaws of Arbor Realty Trust, Inc.!!

4.1 Form of Certificate for Common Stock.****

4.2 Specimen 8.250% Series A Cumulative Redeemable Preferred Stock Certificate.❖

4.3 Specimen 7.75% Series B Cumulative Redeemable Preferred Stock Certificate.$

4.4 Specimen 8.50% Series C Cumulative Redeemable Preferred Stock Certificate.$$

4.5 Indenture, dated May 12, 2014, between Arbor Realty Trust, Inc., as issuer, and U.S. BankNational Association, as trustee.$$$

4.6 First Supplemental Indenture, dated May 12, 2014, between Arbor Realty Trust, Inc., as issuer,and U.S. Bank National Association, as trustee.$$$

4.7 Second Supplemental Indenture, dated as of October 5, 2016, between Arbor RealtyTrust, Inc. and U.S. Bank National Association, as trustee.""

4.8 Third Supplemental Indenture, dated as of November 13, 2017, between Arbor RealtyTrust, Inc. and U.S. Bank National Association, as trustee."""

4.9 Indenture, dated March 13, 2018, between Arbor Realty Trust, Inc. and U.S. Bank NationalAssociation, as trustee.#

4.10 Indenture, dated July 3, 2018, between Arbor Realty Trust, Inc. and U.S. Bank NationalAssociation, as trustee.##

4.11 Indenture, dated July 20, 2018, between Arbor Realty Trust, Inc. and U.S. Bank NationalAssociation, as trustee.###

10.1 Non-Competition Agreement, dated July 14, 2016, by and among Arbor Realty Trust, Inc.,Arbor Realty Limited Partnership, Arbor Commercial Mortgage, LLC and Ivan Kaufman.**

10.2 Third Amended and Restated Agreement of Limited Partnership of Arbor Realty LimitedPartnership, dated July 14, 2016, by and among Arbor Realty GPOP, Inc., ArborRealty LPOP, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Trust, Inc.**

153

ExhibitNumber Description

10.3 Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. andArbor Commercial Mortgage, LLC.*

10.4 Form of Restricted Stock Agreement.*

10.5 Benefits Participation Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. andArbor Management, LLC.*

10.6 Junior Subordinated Indenture, dated May 6, 2009, between Arbor Realty SR, Inc. and TheBank of New York Mellon Trust Company, National Association, as Trustee relating to$29,400,000 aggregate principal amount of Junior Subordinated Notes due 2034.❖❖

10.7 Junior Subordinated Indenture, dated May 6, 2009, between Arbor Realty SR, Inc. and TheBank of New York Mellon Trust Company, National Association, as Trustee relating to$168,000,000 aggregate principal amount of Junior Subordinated Notes due 2034.❖❖

10.8 Junior Subordinated Indenture, dated May 6, 2009, among Arbor Realty SR, Inc., ArborRealty Trust, Inc., as Guarantor, and Wilmington Trust Company, as Trustee, relating to$21,224,000 aggregate principal amount of Junior Subordinated Notes due 2035.❖❖

10.9 Junior Subordinated Indenture, dated May 6, 2009, among Arbor Realty SR, Inc., ArborRealty Trust, Inc., as Guarantor, and Wilmington Trust Company, as Trustee, relating to$2,632,000 aggregate principal amount of Junior Subordinated Notes due 2036.❖❖

10.10 Junior Subordinated Indenture, dated May 6, 2009, among Arbor Realty SR, Inc., ArborRealty Trust, Inc., as Guarantor, and Wilmington Trust Company, as Trustee, relating to$47,180,000 aggregate principal amount of Junior Subordinated Notes due 2037.❖❖

10.11 Amended and restated Annual Incentive Agreement, dated March 31, 2017, by and betweenArbor Realty Trust, Inc. and Ivan Kaufman.####

10.12 First Amendment to Amended and restated Annual Incentive Agreement, dated October 31,2018, by and between Arbor Realty Trust, Inc. and Ivan Kaufman.

10.13 Asset Purchase Agreement, dated February 25, 2016, by and among Arbor Realty Trust, Inc.,Arbor Realty Limited Partnership, ARSR Acquisition Company, LLC, Arbor CommercialFunding, LLC and Arbor Commercial Mortgage, LLC (the schedules have been omittedpursuant to Item 601(b)(2) of Regulation S-K)."

10.14 Voting and Standstill Agreement, dated February 25, 2016, by and among Arbor RealtyTrust, Inc., Arbor Commercial Mortgage, LLC, Arbor Commercial Funding, LLC and theother Persons whose names appear on the signature pages hereto."

10.15 Option Agreement, dated July14, 2016, by and among Arbor Realty Trust, Inc., Arbor RealtyLimited Partnership, Arbor Realty SR, Inc. and Arbor Commercial Mortgage, LLC.**

10.16 Amendment No. 1 to the Option Agreement, dated May 9, 2017, by and among Arbor RealtyTrust, Inc., Arbor Realty Limited Partnership, Arbor Realty SR, Inc. and Arbor CommercialMortgage, LLC.***

10.17 Pairing Agreement, dated July 14, 2016, by and among Arbor Realty Trust, Inc., Arbor RealtyLimited Partnership and Arbor Commercial Mortgage, LLC.**

10.18 Amended and Restated Limited Liability Company Operating Agreement of ARSR PE, LLC,dated July 14, 2016, by and between Arbor Multifamily Lending, LLC and Arbor CommercialMortgage, LLC.**

21.1 List of Significant Subsidiaries of Arbor Realty Trust, Inc.

154

ExhibitNumber Description

23.1 Consent of Ernst & Young LLP.

23.2 Consent of Richey, May & Co., LLP.

31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14.

31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14.

32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1 Financial statements from the Annual Report on Form 10-K of Arbor Realty Trust, Inc. forthe year ended December 31, 2018, filed on February 15, 2019, formatted in XBRL:(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) ConsolidatedStatements of Comprehensive Income, (iv) Consolidated Statements of Changes in Equity,(v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statementsand (vii) Schedule IV.

Exhibit Index

! Incorporated by reference to Quarterly Report on Form 10-Q for the quarter endedJune 30, 2007.

!! Incorporated by reference to Exhibit 99.2 of Form 8-K filed December 11, 2017.

* Incorporated by reference to Registration Statement on Form S-11 (No. 333-110472), asamended, filed November 13, 2003.

** Incorporated by reference to Form 8-K filed July 15, 2016.

*** Incorporated by reference to Exhibit 1.1 of Form 8-K filed May 10, 2017.

**** Incorporated by reference to Registration Statement on Form S-11/A (No. 333-110472), asamended, filed December 31, 2003.

❖ Incorporated by reference to Form 8-A filed February 1, 2013.

❖❖ Incorporated by reference to Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2009.

" Incorporated by reference to Form 8-K filed March 2, 2016.

"" Incorporated by reference to Form 8-K filed October 5, 2016.

""" Incorporated by reference to Form 8-K filed November 13, 2017.$ Incorporated by reference to Form 8-A filed May 8, 2013.$$ Incorporated by reference to Form 8-A filed February 24, 2014.$$$ Incorporated by reference to Form 8-K filed May 12, 2014.# Incorporated by reference to Exhibit 4.1 of Form 8-K filed March 13, 2018.## Incorporated by reference to Exhibit 4.1 of Form 8-K filed July 3, 2018.### Incorporated by reference to Exhibit 4.1 of Form 8-K filed July 20, 2018.#### Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended

March 31, 2017.

155

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

ARBOR REALTY TRUST, INC.

By: /s/ IVAN KAUFMAN

Date: February 15, 2019 Name: Ivan KaufmanTitle: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signedbelow by the following persons on behalf of the Registrant and in the capacities and on the datesindicated.

Signature Title Date

Chairman of the Board of Directors,/s/ IVAN KAUFMANChief Executive Officer and President February 15, 2019

Ivan Kaufman (Principal Executive Officer)

/s/ PAUL ELENIO Chief Financial Officer (Principal February 15, 2019Financial Officer)Paul Elenio

/s/ ARCHIE R. DYKESDirector February 15, 2019

Archie R. Dykes

/s/ EDWARD FARRELLDirector February 15, 2019

Edward Farrell

/s/ WILLIAM C. GREENDirector February 15, 2019

William C. Green

/s/ WILLIAM HELMREICHDirector February 15, 2019

William Helmreich

/s/ MELVIN F. LAZARDirector February 15, 2019

Melvin F. Lazar

/s/ JOSEPH MARTELLODirector February 15, 2019

Joseph Martello

/s/ ELLIOT SCHWARTZDirector February 15, 2019

Elliot Schwartz

/s/ GEORGE TSUNISDirector February 15, 2019

George Tsunis

156

EXHIBIT 21.1

Arbor Realty Trust, Inc.List of Significant Subsidiaries

Name Jurisdiction of Organization

Arbor Realty GPOP, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DelawareArbor Realty Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DelawareArbor Realty SR, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MarylandArbor Realty Commercial Real Estate Notes 2016-FL1, Ltd. . . . . . . . . . . . . . Cayman IslandsArbor Realty Commercial Real Estate Notes 2017-FL1, Ltd. . . . . . . . . . . . . . Cayman IslandsArbor Realty Commercial Real Estate Notes 2017-FL2 Ltd. . . . . . . . . . . . . . Cayman IslandsArbor Realty Commercial Real Estate Notes 2017-FL3 Ltd. . . . . . . . . . . . . . Cayman IslandsArbor Realty Commercial Real Estate Notes 2018-FL1 Ltd. . . . . . . . . . . . . . Cayman IslandsARSR Alpine LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-225602) of Arbor Realty Trust, Inc. andSubsidiaries and in the related Prospectuses,

(2) Amendment No. 1 to the Registration Statement (Form S-4 No. 333-224251) of Arbor RealtyTrust, Inc. and Subsidiaries and in the related Prospectuses, and

(3) Registration Statement (Form S-8 No. 333-196144) pertaining to the Arbor Realty Trust, Inc.2017 Amended Omnibus Stock Incentive Plan of Arbor Realty Trust, Inc. and Subsidiaries

of our reports dated February 15, 2019, with respect to the consolidated financial statements andschedule of Arbor Realty Trust, Inc. and Subsidiaries, and the effectiveness of internal control overfinancial reporting of Arbor Realty Trust, Inc. and Subsidiaries, included in this Annual Report(Form 10-K) for the year ended December 31, 2018.

/s/ Ernst & Young LLP

New York, New YorkFebruary 15, 2019

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-225602) of Arbor Realty Trust, Inc. andSubsidiaries and in the related Prospectuses,

(2) Amendment No. 1 to the Registration Statement (Form S-4 No. 333-224251) of Arbor RealtyTrust, Inc. and Subsidiaries and in the related Prospectuses, and

(3) Registration Statement (Form S-8 No. 333-196144) pertaining to the Arbor Realty Trust, Inc.2017 Amended Omnibus Stock Incentive Plan of Arbor Realty Trust, Inc. and Subsidiaries

of our report dated February 13, 2017, with respect to the financial statements of Cardinal FinancialCompany, Limited Partnership, for the year ended December 31, 2016, which is included in the AnnualReport (Form 10-K) of Arbor Realty Trust, Inc. and Subsidiaries for the year ended December 31,2018.

/s/ Richey, May & Co., LLP

Englewood, ColoradoFebruary 15, 2019

EXHIBIT 31.1

Certification of Chief Executive Officer

I, Ivan Kaufman, certify that:

1. I have reviewed this annual report on Form 10-K of Arbor Realty Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reportingthat occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscalquarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluationof internal control over financial reporting, to the registrant’s auditors and the audit committee ofthe registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internalcontrol over financial reporting which are reasonably likely to adversely affect the registrant’sability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

Date: February 15, 2019 By: /s/ IVAN KAUFMAN

Name: Ivan KaufmanTitle: Chief Executive Officer

EXHIBIT 31.2

Certification of Chief Financial Officer

I, Paul Elenio, certify that:

1. I have reviewed this annual report on Form 10-K of Arbor Realty Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in thisreport, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reportingthat occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscalquarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluationof internal control over financial reporting, to the registrant’s auditors and the audit committee ofthe registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internalcontrol over financial reporting which are reasonably likely to adversely affect the registrant’sability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

Date: February 15, 2019 By: /s/ PAUL ELENIO

Name: Paul ElenioTitle: Chief Financial Officer

EXHIBIT 32

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to18 U.S.C. Section 1350,as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Arbor Realty Trust, Inc. (the ‘‘Company’’)for the annual period ended December 31, 2018 as filed with the Securities and Exchange Commissionon the date hereof (the ‘‘Report’’), each of the undersigned officers of the Company, hereby certifies,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that, to the best of our knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.

Date: February 15, 2019 By: /s/ IVAN KAUFMAN

Name: Ivan KaufmanTitle: Chief Executive Officer

Date: February 15, 2019 By: /s/ PAUL ELENIO

Name: Paul ElenioTitle: Chief Financial Officer

This certification is being furnished and shall not be deemed filed by the Company for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this certification required by Section 906 has been provided to the Companyand will be retained by the Company and furnished to the Securities and Exchange Commission or itsstaff upon request.

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CORPORATE INFORMATIONBOARD OF DIRECTORS

Ivan KaufmanChairman of the Board of DirectorsArbor Realty Trust, Inc.

Joseph MartelloChief Operating OfficerArbor Management, LLC

Dr. Archie R. Dykes (1)Former Chairman and Lead DirectorPepsiAmericas, Inc.

Edward Farrell (1)Senior Vice President Chief Accounting OfficerCorporate Controller andInterim Chief Financial OfficerAllianceBernstein, L.P.

William C. Green (1) (2)

Cofounder and Managing Director Cazenovia Creek Investment Management, LLCChief Financial Officer Ginkgo Residential

Dr. William Helmreich Founder and PresidentByron Research and Consulting

Melvin F. Lazar (3)

Managing MemberMelvin F. Lazar, LLC

Elliot SchwartzCofounder, Chief Executive Officer and General CounselDebt Recovery Solutions, LLC

George TsunisFounder, Chairman and CEOChartwell Hotels

(1) Member of Audit Committee(2) Serves as Lead Director(3) Serves as Chairman of the Audit Committee

CORPORATE OFFICERS

Ivan KaufmanChief Executive Officer and President

Paul ElenioExecutive Vice PresidentChief Financial Officer

John J. Bishar, Jr., Esq. Executive Vice PresidentGeneral Counsel andCorporate Secretary

John CaulfieldExecutive Vice PresidentChief Operating Officer Agency Lending

Fred WeberExecutive Vice PresidentManaging DirectorStructured Finance andPrincipal Transactions

Gene KilgoreExecutive Vice President Structured Securitization

John NataloneExecutive Vice PresidentTreasury and Servicing

Daniel P. KennyExecutive Vice PresidentChief Asset ManagerServicing and Asset Management

Bonnie HabyanExecutive Vice PresidentChief Marketing Officer

Thomas MurphyExecutive Vice PresidentChief Information Officer

Frank LutzExecutive Vice PresidentChief Production Officer

Howard LeinerExecutive Vice PresidentChief Technology Officer

Steven KatzExecutive Vice PresidentChief Investment OfficerResidential Financing

Andrew GuziewiczManaging DirectorChief Credit OfficerStructured Finance

Thomas Ridings Senior Vice PresidentChief Accounting Officer

SHAREHOLDER INFORMATION

Corporate Office333 Earle Ovington BoulevardSuite 900Uniondale, NY 11553Tel.: 516.506.4200

Common Stock ListingNew York Stock ExchangeSymbol: ABR

Transfer AgentAmerican Stock Transfer &Trust Company6201 15th AvenueBrooklyn, NY 11219Tel.: 718.921.8200

Legal CounselSkadden, Arps, Slate, Meagher & Flom LLP4 Times SquareNew York, NY 10036Tel.: 212.735.3000

Independent RegisteredPublic Accounting FirmErnst & Young LLP5 Times SquareNew York, NY 10036Tel.: 212.773.3000

Investor Relations ContactPaul ElenioChief Financial OfficerArbor Realty Trust, Inc.Tel.: 516.506.4200

Arbor Realty Trust, Inc. has filed Section 302 certifications as anexhibit to its Form 10-K, and theChief Executive Officer has presented the Company’s annual certification to the NYSE.

A210

ARBOR REALTY TRUST, INC.333 EARLE OVINGTON BLVD.

SUITE 900 | UNIONDALE, NY 11553P: 516.506.4200 | F: 516.506.4345

ARBOR.COM

2018ANNUAL REPORT